Non-financial disclosures in accordance
with German law implementing the EU directive 2014/95

1

UBS Group
AG consolidated

About this Sustainability Report

We strive to report openly and
transparently about our firm’s sustainability approach and activities,
consistently applying our firm's information policy and disclosure principles. The
core medium for our sustainability disclosure is this Sustainability Report
2019, supplemented – as referenced in the GRI Content Index – by other relevant
information, which can be found in the UBS Annual Report 2019.

We have included the following sections
from the UBS Annual Report 2019 at the beginning of this document:

–Our strategy

–Performance targets and measurement

–Our businesses

–Our environment

–How we create value for our stakeholders

Except
where clearly identified, all of UBS’s sustainability information included in
this Sustainability Report is presented for
UBS Group AG and all its subsidiaries. Information on our consolidated
subsidiaries can be found in Note 31 “Interests in subsidiaries and other
entities” in our Annual Report 2019. UBS AG consolidated information does not
differ in any material respect from UBS Group AG’s consolidated information.

We use the Global Reporting Initiative (GRI) as
the basis for our sustainability reporting and apply a careful process weighing
up the materiality and relevance of the information reported and the
expectations of all our stakeholders.

This document also includes our group’s
disclosures of non-financial information required by Germany’s implementation
law of EU directive 2014/95 (CSR-Richtlinie-Umsetzungsgesetz / CSR-RUG) (nichtfinanzieller
Konzernbericht). A table at the end of this document (page 166) provides
the references to such non-financial information.

This Sustainability Report has been reviewed by
Ernst & Young Ltd (EY) against the GRI Standards (limited assurance). The
content has been prepared in accordance with the GRI Standards, Comprehensive option,
as evidenced in the EY assurance report. Both, the GRI content index and the
assurance report, have been included in this document and can also be
downloaded from www.ubs.com/gri.

5 March 2020

UBS Group AG and UBS AG

Contacts

UBS Corporate
Responsibility Management

The Corporate Responsibility team
manages UBS’s sustainability
disclosure and also acts as information provider for sustainability-related
enquiries.

In 2019, we again demonstrated our
commitment to advancing sustainability in our firm, for and with our clients,
and in our industry. We are proud of what our firm has achieved during the
course of last year – and of our ambitious plans going forward.

The Corporate Culture and
Responsibility Committee (CCRC) regularly monitors our firm's sustainability
activities and ambitions and approves its strategy and goals. In 2019, we
witnessed an accelerated momentum in our UBS in society program as well as in our sustainable finance activities. A key
indicator is the development of our Core SI (sustainable investing) assets
under management where we managed to more than double penetration from 5.6% of
total invested assets in 2017 to 13.5% in 2019 – and thus reached the goal we
set ourselves then one year earlier than planned.

Highlights presented to the CCRC
included the further strengthening of our firm's sustainability strategy.
Notable examples include the integration of sustainability topics in our
employee lifecycle activities – with the explicit ambition (included in our UBS in society constitutional document) of being an employer of choice, as well as
the expansion of sustainable finance activities across our firm.

At UBS, we are convinced that this
momentum will continue to accelerate during the coming years. Continually
growing interest by our clients in sustainable finance solutions is evidenced
in major surveys that we conducted among our private and institutional clients,
as well as in our biannual stakeholder survey. I also experience it in my
regular, personal interactions with clients across all of our firm's businesses
and regions.

As we move into the 2020s, we will
further expand our firm's sustainability efforts, shaping them in particular
around three interconnected frameworks: the United Nations Sustainable
Development Goals (SDGs); the recommendations of the Financial Stability Board's
Task Force on Climate-related Financial Disclosures (TCFD); and the UN-backed
Principles for Responsible Banking (PRB).

We were among the very first banks
that shone a light on the importance of the SDGs – and specifically on what it
takes to make them investable for clients, recognizing the major investment gap
associated with their achievement with estimates ranging from USD 2 trillion to
as high as USD 7 trillion annually. This gap needs to be closed if the world
wants to successfully tackle the enormous societal and environmental challenges
expressed through the SDGs. We are keen to help develop solutions in this
regard, building on our successful and sometimes pioneering work aimed at mobilizing
private and institutional capital towards the Goals.

3

Secondly, the
TCFD's recommendations, focusing on the risks associated with climate change,
try to help address in particular information gaps that prevent investors from
properly assessing related financial risks for their portfolios and thus to
direct capital flows to more sustainable uses. Following the launch of these
recommendations in 2017, we have continuously improved and expanded our
climate-related disclosures to demonstrate our active engagement for an orderly
transition to a low-carbon economy. A key component of our comprehensive
climate strategy is to offer innovative products and services in the areas of
investments, financing and research as well as to encourage more transparency
by companies. At the same time, we are working on further restricting assets
that are associated with climate-related risks. We continue to be successful on
both fronts, increasing our climate-related SI by 23% to
USD 108 billion from 2018 to 2019 while reducing our carbon-related assets from
USD 3.2 billion to USD 1.9 billion.

Finally, in 2019 we became a founding
signatory of the PRB, a framework that is meant to support banks in integrating
society's goals into their business strategy – and that incorporates both the
SDGs and the Paris Agreement on Climate Change. For the PRB's four-year
implementation period, we have committed to set, publish and work towards
ambitious targets. This commitment reinforces our long-standing focus on
maximizing positive effects through our sustainable business activities and on
minimizing negative impacts, notably through our management of environmental
and social risks.

This Sustainability Report provides
comprehensive information on all of the aforementioned commitments and
activities – and more. I invite you to read it, in particular as it demonstrates
how our employees contribute to UBS's sustainable performance.

UBS’s commitment to the UN Global
Compact

UBS was among the 43 companies that
first signed the UN Global Compact upon its launch in 2000 and is committed to
its principles on human rights, labor standards, the environment and
anti-corruption. We are also a member of the UN Global Compact Network
Switzerland. As reflected in detail in this document, we have a comprehensive
set of commitments and activities in place pertaining to the principles of the
UN Global Compact.

Axel A. Weber

Chairman of the Board of Directors

4

Sustainability
at UBS

Our concept of sustainability is
guided by the United Nations (UN) Sustainable Development Goals (SDGs), which
bring together the enormous societal and environmental challenges the world
faces. We recognize that it is important to understand these challenges as well
as the opportunities arising from them, to consider their relevance to UBS and
to identify potential actions our firm may need to take.

Our commitment to the SDGs

As a founding signatory of the
UN-backed Principles for Responsible Banking, UBS has committed to aligning our
business strategy to be consistent with and contribute to society’s goals. By
doing so, we pledged to strategically align our business with the SDGs and the
Paris Agreement on Climate Change.

What are the SDGs?

The 17 SDGs provide a global roadmap
to address environmental, economic, and social imbalances that affect the
world’s population and its institutions. Such sustainability aims are relevant
to everyone. The SDGs were agreed upon by 193 states in 2015 and officially
launched by the UN on 1 January 2016.

How do they pertain to UBS?

We were among the very first banks
that shone a light on the importance of the SDGs. Already in 2015, before their
official launch, we published a paper on what it takes to make the SDGs
investable for clients. Our focus has continued to be on investability as this
is consistent with a key message that accompanied the launch of the SDGs – the
recognition of a major investment gap (with estimates ranging from USD 2
trillion to as high as USD 7 trillion annually) that will need to be closed if
the world was to achieve the Goals by 2030.

We have refined our analysis of and
commitments to the SDGs ever since, not least in four successive white papers
for the World Economic Forum (WEF) Annual Meeting. In our 2017 white paper we
set out commitments to sustainable and impact investing, which we executed on
by working with other institutions to create innovative solutions that can help
private and institutional clients achieve their financial and societal
objectives.

We have also executed on our 2018 white paper
commitments to partnership for the Goals, by working more closely with
multilateral development banks, through our partnership with the World Bank, to
offer development bank bond solutions for private clients; by collaborating to
fill gaps in the sustainable investing landscape with innovative new solutions;
and by acknowledging the demand and impact of collaborative philanthropy.

In 2019 we highlighted the need for people to
become more aware of the SDGs; for sustainability to be easier understood; and
for more solutions that enable the public to make a real contribution to people
and planet. We outlined eight potential solutions on how to improve the
sustainable investing, giving, and consumption ecosystems to mobilize greater
support for tackling world's most urgent challenges.

In 2020 we again published a white paper on
the occasion of the WEF Annual Meeting, focusing on SDG 13, Climate action, and
on ways in which investors can align their investments towards a climate-smart
future.

Through the #TOGETHERBAND campaign, which we
launched jointly with BOTTLETOP in 2019, we raise public awareness and inspire action
to achieve the SDGs. The campaign is supported by a group of high-profile
ambassadors and experts with a strong commitment to sustainability.

®Refer to www.ubs.com/wef-2020 for more information about our
white paper

®Refer to www.ubs.com/togetherband for more details about the
campaign

What do we do?

At UBS we see a strong business
rationale for catering to the growing importance of and demand for
sustainability – as embodied by the SDGs. We are committed to play a leading
role in providing both finance and expertise to meet these ambitious global goals.
As the largest truly global wealth manager to high net worth and ultra high net
worth clients, we regard it as particularly critical to help private wealth
contribute to fund the development of a more sustainable world.

UBS has touchpoints to the SDGs across the entire
firm. With a business model covering retail, private and institutional clients
we have links to every single SDG through one or more of our firm’s activities.
Some of the key examples include the UBS Optimus Foundation’s support for The
Power of Nutrition foundation (SDG 2), the UBS Oncology Impact Fund (SDG 3),
and the Gender Equality ETF (SDG 5).

We believe, however, that five SDGs (4, 8,
12, 13, 17), as per the table below, are of particular pertinence to our firm.
In particular due to our strategy and business model and (business) focus areas
it is with these five that we see the most material impacts across our value
chain – notably by helping to advance positive developments through sustainable
finance & investing and ESG expertise as well as minimizing negative
impacts through the management of environmental and social risks.

We have captured these five SDGs, our
rationale for each one and key focus areas pertaining to each of them in the
graph on the following page. Over the coming years, we will continue to refine
our analysis of our firm’s links to the SDGs – in order to better understand
and depict positive and negative impacts across our value chain and to set
objectives accordingly.

5

Sustainable
Development Goals in our focus

6

Our strategy

We aim
to drive higher and superior returns by growing and leveraging our unique,
integrated and complementary business portfolio and geographic footprint.

UBS is the largest truly global wealth
manager and a leading personal and corporate bank in Switzerland, with focused
investment bank and asset management divisions. We concentrate on
capital-efficient businesses in our targeted markets, where we have a strong
competitive position and an attractive long-term growth or profitability
outlook. We view capital strength as the foundation of our strategy.

In delivering all of UBS as one firm to our
clients, we intend to: strengthen our leading client franchises and grow share;
position UBS for growth by expanding our services and capabilities; drive
greater efficiencies and scale; and further intensify collaboration for the
benefit of our clients.

Driving increasing returns

We manage UBS for the long term,
focusing on sustainable profit growth and responsible resource deployment. We
aim to balance growth opportunities with cost and capital efficiency in order
to drive attractive risk-adjusted returns and sustainable performance.

For the years 2020–2022, we have seven
strategic priorities, which are outlined below.

Priority I We aim to increase profit before tax in our Global Wealth
Management business by 10–15% and drive higher pre-tax margins by elevating our
leading franchise. We are adjusting our coverage across the client spectrum to
deliver more tailored services and solutions. We are reorganizing ourselves to
be closer to clients, in order to increase time spent with them, empowering
regions, improving our responsiveness and speed to market, as well as
delivering on all of the firm’s capabilities through expanded strategic partnerships
with the Investment Bank and Asset Management. Furthermore, we are expanding
our product offering while becoming more efficient, leveraging scale through
partnerships and optimizing processes to increase productivity.

Priority II In our Investment Bank, we intend to improve returns by driving profitable growth, by further optimizing resources and
through collaboration. We will maintain our capital-light business model that
is focused on advice and execution and leverages our digital capabilities.
Together with our other business divisions and through external partnerships,
we aim to deliver market-leading digital, research and banking capabilities to
our clients, while consuming up to one-third of Group resources.

Priority III In Asset Management, we intend to capitalize on our differentiated
client offering for further growth,
performance and scale. We plan to build on our strengths in fast-growing areas
of the industry, such as sustainable investing, private markets and
alternatives.

Priority IV Personal & Corporate Banking aims to deliver steady profit
growth by enhancing its digital initiatives and services, while improving
efficiency. By expanding our leading position in digital services in
Switzerland, along with broadening our advisory solutions and product offering,
we expect to increase profits despite the current negative interest rate
environment.

Priority V We want to deliver more as one firm to our clients. The collaboration between our business divisions is critical to the
success of our strategy and is a source of competitive advantage. This
collaboration also provides further revenue growth potential and enables us to
better meet client needs; for example, in the ultra high net worth and Global
Family Office space.

Another area where collaboration between our
business divisions can bring more value to clients is in sustainable finance.
As the largest truly global wealth manager, we have a responsibility to take a
leading role in shaping a positive future, and our goal is to be the financial
provider of choice for clients who wish to mobilize capital toward the
achievement of specific environmental or social outcomes. We are shaping the landscape of sustainable finance by using thought
leadership, innovation and partnerships to support clients in their
sustainability efforts.

®Refer to “Society” and “Our focus on ESG” in the “How we create
value for our stakeholders” section of this report for more information about
our engagement and leadership in sustainability matters

Priority VI We aim to drive improvements in firm-wide
efficiency to fund growth and enhance returns. We believe continued
optimization of processes, platforms, our organization and capital resources
will help us to achieve this.

We will continue to invest in technology with
the goal of improving efficiency and effectiveness, driving growth and better serving
our clients.

We also intend to realize the benefits of
existing external partnerships and to explore selected new opportunities.

Priority VII We plan to maintain an attractive capital
return profile through dividends and share repurchases. Our capital strength
and capital-accretive business model allows us to grow our business while
delivering attractive capital returns to our shareholders.

We aim to increase our ordinary dividend per
share by USD 0.01 each year, and to return excess capital through share
repurchases. We consider business conditions and any idiosyncratic developments
when determining excess capital available for share repurchases.

Our firm's sustainability strategy is
guided by our goal to be the financial provider of choice for clients wishing
to mobilize capital towards the achievement of the SDGs and the orderly
transition to a low-carbon economy. We work towards this goal by integrating
sustainability into our mainstream offerings, through new and innovative
financial products with a positive effect on the environment and society, and
by advising clients on their philanthropic works. And it is through the
management of environmental and social risks, the management of our
environmental footprint and our sustainability disclosure that we continue to
set standards in our industry.

®Refer to the UBS in society constitutional document in the Appendix
1 for more information about our sustainability strategy

®Refer to ”Society” in this section for more information about our
sustainability strategy

8

Performance targets and measurement

Targets and capital
guidance

In January 2020, we updated and
simplified our performance target framework. We reduced the number of targets
to concentrate primarily on the Group rather than our business divisions,
underlining our focus on cross-divisional collaboration. Our targets are
underpinned by the latest three-year strategic plan, which reflects our
strategic initiatives, management actions, as well as certain economic and
market assumptions. The return and efficiency targets have been revised to
reflect changes in the market outlook since the previously communicated targets
were set in October 2018.

The table below shows the performance targets
and capital guidance for the 2020–2022 period. Our updated performance targets
are based on reported results. From the first quarter of 2020, we will no
longer disclose adjusted results in our financial reports. We will continue to
provide disclosure of restructuring and litigation expenses as well as other
material profit or loss items that management believes are not representative
of underlying business performance in our management’s discussion and analysis.

Performance against targets is taken into
account when determining variable compensation.

®Refer to “Performance and compensation at a glance” in the
“Compensation” section of this report for more information about variable
compensation

®Refer to “Alternative performance measures” in the appendix to this
report for definitions of and further information about our performance
measures

Targets and capital guidance 2020–2022 (on a reported basis)

Group
returns

12–15% return on CET1 capital (RoCET1)

Cost

efficiency

Positive operating leverage and 75–78%
cost / income ratio

Growth

10–15% profit before tax growth in Global Wealth Management

Capital
allocation

Up to 1⁄3 of Group RWA and
LRD in the Investment Bank

Capital
guidance

~13% CET1
capital ratio ~3.7% CET1 leverage ratio

Sustainability
objectives

We have set strong overarching
ambitions that guide our sustainability performance. We are transparent about
our aims and progress wherever possible to demonstrate our commitment. We set
annual sustainability goals, which are reflected in the comprehensive set of
GRI objectives included in this document.

In addition, our firm's sustainability aims,
i.e., beyond the 2020 time horizon, reflect our focus on the mid- to long-term.

®Refer to “Society” in this section for more information about our
sustainability aims and key goals

®Refer to the Appendix 3 for our sustainability objectives and
achievements 2019 and sustainability objectives 2020

We operate through four business
divisions – Global Wealth Management, Personal & Corporate Banking, Asset
Management and the Investment Bank. Our
global reach and the breadth of our expertise are major assets that set us
apart from our competitors. We see partnership as key to our growth,
both within and between business divisions. We are at
our best when we combine our strengths to provide our clients with more
comprehensive and better solutions through, for example, the creation of a unified
capital markets group across Global Wealth Management and the Investment Bank,
and a Global Family Office joint venture.

Combining our
strengths makes us a better firm. Initiatives such as the Group Franchise Awards encourage
employees to look for ways to build bridges between areas and offer the whole
firm to our clients.

10

Global Wealth Management

We are the largest truly global
wealth manager, with USD 2.6 trillion in invested assets. Our goal is to provide
tailored advice and solutions to private clients and family offices.

Since the combination
of Wealth Management and Wealth Management Americas in 2018, we have continued
to deliver comprehensive services to clients, capture operational efficiencies, and invest in our
business. More than 22,000
Global Wealth Management employees assist our clients with achieving their goals. Our presence
in the ultra high net worth segment is particularly strong, and we have access to the majority of the world’s billionaires.

In Japan, we
have entered into a comprehensive strategic wealth management partnership with
Sumitomo Mitsui Trust Holdings, Inc. (SuMi Trust Holdings). The new joint venture will combine
UBS’s wealth management capabilities with SuMi Trust Holdings’ stature as Japan’s largest
independent trust bank. SuMi Trust Holdings offers a range of services, including
banking, real estate, asset and wealth advisory services, and has strong client
access and brand name awareness in Japan.

Global Wealth Management organizational
changes

In January 2020, we announced several
initiatives designed to achieve Global Wealth Management’s growth ambitions and
to elevate the quality and value of the service we deliver to our clients. First,
we have reframed our offering around each client’s needs to deliver more
tailored services and solutions. Second, we have made it easier for advisors to
spend more time with clients and to better understand their needs and
preferences, and we have taken measures to improve our responsiveness and speed
to market. We created three distinct business units in
EMEA – Europe; Central and Eastern Europe; and the Middle East and Africa – to
better capture the diverse opportunities in these markets. Finally, we intend to deliver all of the firm’s capabilities through
strategic partnerships with the Investment Bank and Asset Management.

Our focus

We serve high net worth and ultra
high net worth individuals, families and family offices around the world, as
well as affluent clients in selected markets. Through our organizational
changes, we are making our Global Family Office capabilities, which are provided
to ultra high net worth individuals, available to more clients, targeting
coverage of around 1,500 in total.

While we are already a market leader in the
ultra high net worth segment outside the US,1 we believe that we can also become the firm of choice for the
wealthiest clients in the US,
many of whom already have a relationship with UBS. Our globally diversified footprint allows
us to capture growth both in the largest (the US) and the fastest-growing (Asia
Pacific) wealth markets.

We are focusing on increasing mandate and
lending penetration, delivering innovative solutions for our clients (e.g.,
structured solutions, private markets, sustainability and thematic investing), as
well as enhancing our advisors’ productivity by making operational processes
more efficient. Additionally, we aim to maintain low attrition and to increase
our share of clients’ business.

We are investing in our operating platforms
and tools to support our clients and client advisors, in order to better serve
our clients’ needs and improve our efficiency. As of 31 December 2019, approximately
80% of invested assets booked outside the Americas were on the Wealth Management
Platform as we continue to consolidate our
operating platforms there.In the US, and in collaboration with our
third-party software provider Broadridge, we are building the Wealth Management
Americas Platform, which
we expect to become operational in 2021. The development of our platforms is
happening alongside enhancements to our digital capabilities for the benefit of
our clients and advisors.

®Refer to “Clients” in the “How we create value for our stakeholders”
section of this report for more information about innovation and digitalization

How we operate

We have a global footprint, with a
presence in the world’s largest and fastest-growing markets and are well
positioned to serve clients with global interests and demands. The US is our
largest market, accounting for more than 50% of our invested assets. We are the
largest wealth manager in Asia Pacific and the second largest in Latin America
in terms of invested assets.1

In Switzerland, we hold a leading market
position1 and can deploy the full range of the Group’s products and
services across Personal & Corporate Banking, Asset Management and the
Investment Bank.

Our broad domestic footprint in Europe
enables us to provide locally adapted offerings, and our local offices across
Central Europe, the Middle East and Africa keep us close to our clients.

Through strategic partnerships with the Investment Bank and Asset Management, we provide clients with
broad access to financing, global capital markets and portfolio solutions.

®Refer to “Working in partnership” in this section for examples of collaboration between the business divisions

1 Statements of market
position for Global Wealth Management are UBS’s estimates based on published
invested assets and internal estimates.

As part of our organizational changes, ultra
high net worth client relationships and advisors were integrated into regional
business units to increase speed and proximity to clients. In our newly established Global Capital Markets
team, we combined our Investment Product Services (IPS) unit and Investment
Bank teams and their respective expertise. The Global Capital Markets team
provides clients with an enhanced offering, faster execution, and more
competitive conditions.

Our main competitors are either large US
players that have a smaller presence outside the US (including Bank of America,
JPMorgan Chase, Morgan Stanley and Wells Fargo) or geographically diverse firms
with a smaller presence in the US (including BNP Paribas, Credit Suisse, HSBC and
Julius Baer). Our size, geographic presence and diversified client portfolio
are exceptional and would be difficult for other wealth managers to replicate
organically.

What we offer

Our distinctive approach to wealth
management is designed to strengthen engagement with our clients and to help
them pursue what matters most to them.

®Refer to “Clients” in the “How we create value for our stakeholders”
section of this report for more information about innovation and digitalization

12

Clients benefit from
our comprehensive set of capabilities and expertise, including wealth planning,
investing, philanthropy, corporate and banking services, as well as family
advisory services. We also offer considerable expertise
across structured, mortgage and securities-based lending.

We work to improve our offerings and respond
to changing client needs. In 2019, we launched a new line of UBS Manage offerings in Switzerland. In addition, to meet growing demand, we
expanded the number of exclusive private markets opportunities for clients. Our
sustainable investing solutions continue to be well received. Currently, invested
assets in 100% sustainable investing solutions and bespoke sustainable
investing solutions have grown to over USD 9 billion. We also broadened
our sustainable investing offering, teaming up with external partners such as
BMO Global Asset Management, Generation Investment Management and KKR & Co.
Inc. to offer clients innovative sustainable development-related investment
opportunities.

How we serve our
clients

We serve our clients through local
offices, dedicated advisors and experienced specialists. We use a mix of
digital and non-digital channels (including marketing campaigns, events, advertising, publications and
digital-only solutions) to help drive greater awareness of UBS among prospects and
reinforce trust-based relationships between advisors and clients.

How we are organized

Our business division is organized
into regional business units: the US and Canada; Latin America; Europe; Central
and Eastern Europe; the Middle East and Africa; Asia Pacific; and Switzerland. We
also have a business unit for our Global Family Office clients. Central
functions for global capabilities supporting these business units are the CIO,
Global Banking, Global Capital Markets and the Chief Operating Office. We are
governed by the executive, risk, operating, and asset and liability committees.

As a leading personal and corporate
bank in Switzerland, we provide comprehensive financial products and services
to private, corporate and institutional clients. We are among the country’s
foremost players in the private and corporate loan market, with a substantial lending
portfolio. Personal & Corporate Banking is at the core of our universal
bank delivery model in Switzerland.

Our focus

We are a leading personal and
corporate bank in Switzerland, providing a superior client experience and
combining technology with a personal touch.

We have established a strong pipeline of
growth initiatives across our business areas. Effective
1 November 2019, we have set up a new business area, Digital Platforms &
Marketplaces, to rapidly extend our platform offering for mortgages.

We also aim to improve efficiency by
streamlining processes and introducing new digital self-service tools. For
example, we have rolled out an integrated mortgage workflow for extensions, which
significantly reduces the time it takes to set up a contract. In addition, we have
further optimized our contact center setup, increased automation of repetitive
processes, and launched a pilot for a digital mailroom that reduces processing
time by digitizing incoming physical mail and documents. Technology plays a key
role in our client-centered operating model and we aim to expand our digital
leadership. Our multi-year digitalization program enables us to further enhance
the client experience. Thanks to technological solutions, we are able to offer
clients new products and identify new cross-selling opportunities in a more
targeted way.

®Refer to “Clients” in the “How we create value for our stakeholders”
section of this report for more information about innovation and digitalization

Operationally, we strive for excellence in execution, focusing on
efficiency while improving our service quality and overall agility. To scale
our digital transformation efforts, in 2019 we opened our second digital
factory in Switzerland, which is larger than our first one. These digital
factories are now home to approximately 1,100 employees across various
functions. Moreover, we introduced an agile academy and quick-launch formats to
drive innovation and attract key talent.

How we operate

While we
operate primarily in our home market of Switzerland, we also provide
capabilities to support the growth of the international business activities of
our Swiss corporate and institutional clients through our local hubs in
Frankfurt, New York, Hong Kong and Singapore. We are the only Swiss bank
providing local banking capabilities abroad to its corporate clients.

In the Swiss Personal Banking business, our
competitors are Credit Suisse, PostFinance, Raiffeisen, the cantonal banks and
other regional and local Swiss banks. In addition to those traditional players,
we also face competition from international players entering the Swiss market and
neobanks. We compete in areas such as basic banking, mortgages and foreign
exchange, as well as investment mandates and funds.

What we offer

Our personal banking clients have
access to a comprehensive, life cycle-based offering and convenient digital
banking. We deliver a broad range of basic banking products, from payments to
deposits, cards, online and mobile banking, as well as lending (predominantly mortgages),
investments and retirement services. The overall service range is complemented by
our UBS
KeyClub reward program, which provides clients
residing in Switzerland with exclusive and attractive offers, including those from
third-party partners. In close collaboration with Global Wealth Management, we
offer leading private banking and wealth management services.

We collaborate closely with the Investment
Bank to offer capital market and foreign exchange products, hedging strategies
and trading capabilities, as well as corporate finance advice. In cooperation
with Asset Management, we also provide fund and portfolio management solutions.

®Refer to “Working in partnership” in this section for examples of
collaboration between the business divisions

How we serve our clients

We are the recognized digital leader,
with the highest online and mobile banking penetration in Switzerland, and
continue to invest in a multi-channel distribution model to further enhance our
leading position.

14

We are adapting
existing branch formats to suit evolving client needs by converting some
locations to smaller, more agile branches that serve as digital support hubs
and are intended to ensure a strong local presence along with advice on basic
client needs. We aim to further reshape our physical footprint in an innovative
and client-centric way, particularly by defining future branch formats with
different purposes.

As part of our sustainability road map, we are
substantially expanding our offerings. Our personal banking and institutional
clients have access to a number of sustainable investment solutions, and we
promote innovative approaches for corporate banking clients. For example, we
issued the first green bond for a listed company in Switzerland.

For marketing
campaigns, we use online media (including social media and search engine
advertising), out-of-home media (posters and digital billboards) and, very
selectively, print, TV, radio and cinema advertising. In line with our position
as a digital leader in Swiss banking, and because of the channel’s cost-effectiveness,
we follow a digital-first media strategy. More than 50% of our media spending goes
into online channels.

UBS Asset Management is a large-scale
and diversified global asset manager, with USD 903 billion in invested
assets. We offer investment capabilities and styles across all major
traditional and alternative asset classes, as well as advisory support to
institutions, wholesale intermediaries and Global Wealth Management clients
around the world.

Our focus

Our strategy is focused on
capitalizing on the areas where we have a leading position to drive further
profitable growth and scale.

Sustainable and Impact Investing remains a
key area, as clients increasingly seek solutions that combine their investment
goals with sustainability objectives. We continue the expansion of our
world-class capabilities in areas such as climate-aware solutions. We do this through:
product and service innovation; dedicated research; integration of
environmental, social and governance factors into our investment processes,
leveraging our proprietary analytics; and active corporate engagement.

In response to the increasing importance of
private markets and alternative investments, we are building on our existing
expertise in these areas, including our hedge fund and real estate businesses,
as well as our capabilities across infrastructure, private equity and private
debt.

We continue to develop our award-winning1 Indexed
and Alternative Beta business, including exchange-traded funds (ETFs) in Asia
Pacific, Europe and Switzerland. We provide customization while leveraging our
highly scalable platform, with a particular focus on key areas such as
sustainability and fixed income products. Since 2016, the Alternative Beta
business has seen growth in invested assets of approximately 85%.

Geographically, we are investing in our leading presence and
products in China, both onshore and offshore, one of the fastest-growing asset
management markets in the world, building on our extensive and long-standing presence
in the Asia Pacific region.

In the rapidly evolving and attractive
wholesale segment, we aim to significantly expand our market share through a
combination of continued client penetration, expansion of our strategic
partnerships with distributors and the build-out of our client service
offerings.

®Refer to “Clients” in the “How we create value for our stakeholders”
section of this report for more information about innovation and digitalization

To drive further growth in our Investment
Solutions business, which provides access to and combines the breadth and depth
of our capabilities across public and private markets, we are
focused on delivering superior multi-asset strategies and white-label solutions
to meet the needs of clients around the world.

We also continue to intensify our
cross-divisional collaboration, in particular with Global Wealth Management, to
enable our teams to draw on the best ideas, solutions and capabilities from
across the firm to deliver superior investment performance and experiences for
our clients.

®Refer to “Working in partnership” in this section for examples of
collaboration between the business divisions

To support our growth, we are focused on
disciplined execution of our operational excellence initiatives. This includes
further automation, simplification, process optimization and offshoring /
nearshoring of selected activities, complemented by a continued modernization
of our platform and development of our analytics and data capabilities.

In January 2020, we announced a number of
changes to the operational setup of our Platforms businesses intended to
deliver greater scale and breadth of offering for our clients and ensure the
ongoing development of these world-class businesses in a highly competitive
marketplace. The changes include the proposed sale of a majority stake (51.2%)
in UBS Fondcenter to Clearstream, Deutsche Börse Group’s post-trade services
provider. The sale is expected to close in the second half of 2020, subject to
customary closing conditions. In addition, in order to fully leverage the
expertise and resources within the wider Group to accelerate the growth of the
business, we have decided to transfer UBS Partner,
our highly innovative white-label technology solution, to the Corporate & Institutional
Clients International business within the Personal & Corporate Banking
business division. UBS Partner will be part
of UBS’s “The Bank for Banks” client offering, and this is an exciting step in
our collaboration efforts across the firm to bring the best of UBS to our
clients.

With these changes, we are making a step
change in the proposition for our clients, who will have seamless access to
expanded platform capabilities, while at the same time enabling us to sharpen
our focus on the execution of our strategic priorities.

How we operate

We cover the main asset management
markets globally, and have a local presence in four regions: the Americas;
Europe, the Middle East and Africa; Switzerland; and Asia Pacific.

Our main competitors are global firms with
wide-ranging capabilities and distribution channels, such as Amundi, BlackRock,
DWS, Goldman Sachs Asset Management, Invesco, JPMorgan Asset Management, Morgan
Stanley Investment Management and Schroders, as well as firms with a specific
market or asset class focus.

1 Second largest
Europe-based indexed player based on peers’ public reporting (UBS calculation,
3Q19) and ranked fourth largest ETF provider in Europe as of December 2019
(source: ETFGI).

16

What we offer

We offer clients a wide range of
investment products and services in different asset classes in the form of
segregated, pooled or advisory mandates, as well as registered investment funds
in various jurisdictions.

We deliver our investment products
and services directly to institutional clients. High net worth and retail
clients are served through Global Wealth Management, third-party banks and
distributors.

Our teams are based in the key financial
markets, bringing our unique perspectives and global expertise to our clients around
the world. This, in combination with our presence on the ground, enables our
teams to develop long-term relationships with our clients and a deep
understanding of their specific needs.

How we are organized

Our business division is organized
along five areas: Client Coverage, Investments, Real Estate & Private
Markets, Products and the COO Area. We are based worldwide across four regions,
with nine main hubs: Chicago, Hong Kong, London, New York, Shanghai, Singapore,
Sydney, Tokyo and Zurich.

We are governed by executive, risk and
operating committees, supplemented by business
unit-specific committees.

The Investment Bank provides a range
of services to institutional, corporate and wealth management clients to help
them raise capital, grow their businesses, invest for growth and manage risks. We
are focused on our traditional strengths in equities, foreign exchange,
research, advisory services and capital markets, complemented by a targeted
rates and credit platform. We use our powerful research and technology
capabilities to support our clients as they adapt to the evolving market
structures and changes in the regulatory, technological, economic and
competitive landscapes.

Our capital-light business model allows the
Investment Bank to deliver digital, research and
banking capabilities, consuming
up to one-third of Group resources.

Structural changes in the Investment
Bank

In January 2020, we realigned our
Investment Bank to meet the evolving needs of our clients and to further focus
resources on opportunities for profitable growth and digital transformation.
Corporate Client Solutions and Investor Client Services were renamed Global
Banking and Global Markets, respectively. Global
Banking moves to two product verticals (Capital Markets and Advisory), adopting
a global coverage model. Global Markets combines
Equities and Foreign Exchange, Rates and Credit, and introduces three product
verticals (Execution & Platform, Derivatives & Solutions, and
Financing) and three horizontal functions (Risk & Trading, Distribution and
Digital Transformation). The new Global Markets
structure is designed to facilitate the alignment of business processes and
operations and to reduce inefficiencies and duplication. It further permits a
more holistic understanding of our clients’ cross-product needs and is designed
to foster tighter coordination of client coverage and distribution. This will
allow for improved oversight of key risks and the allocation of resources. Investment
Bank Research and UBS Evidence Lab Innovations continue
to be a critical part of our advisory and content offering.

The changes are effective 1 January and we will provide restated prior-period information in advance of
our first quarter 2020 results.

Our focus

Our key priority is disciplined
growth in the capital-light advisory and execution businesses, while
accelerating our digital transformation. Global Banking has a global coverage model
and will utilize its deep global industry expertise to meet the emerging needs
of its clients. In Global Markets, we are focused on clients’ expectation of
excellence in execution, financing and structured solutions.

Our digital
strategy is led by our businesses, which harness technology to deliver superior
and differentiated client service and content. We established the UBS Investment Bank Innovation Lab to speed up innovation by facilitating proofs of
concept. In Global Markets, the new Digital Transformation horizontal function facilitates
adoption of best-in-class practices around trade idea generation, liquidity
management, pricing tools and risk management. In Investment Bank Research, we
continue to build UBS Evidence Lab Innovations to concentrate on data-driven
outcomes.

Our balanced
global reach gives us attractive options for growth across various regions. In
the Americas, the largest investment banking fee pool globally, we are focusing
on increasing our market share in our core Global Banking and Global Markets
businesses.

In Asia Pacific, we see opportunities
primarily from expected market internationalization and growth in China. We are
planning to grow by further strengthening Global Banking, both onshore and
offshore. Partnerships between the Investment Bank’s businesses and the Group,
including the creation of a unified capital markets group, and, externally,
joint ventures such as that with Banco do Brasil, are a key strategic focus. These
initiatives should lead to growth by delivering global products to each region,
leveraging our global connectivity across borders and sharing and strengthening
our best client relationships.

®Refer to “Working in partnership” in this section for examples of
collaboration between the business divisions

How we operate

Our geographically
balanced business has a global reach, with a presence in more than 30 countries
and principal offices in the major financial hubs.

Competing firms are active in many of our
markets, but our strategy differentiates us, with its focus on leadership in the
selected areas where we have chosen to compete, and a business model that
leverages talent and technology rather than balance sheet.

Our main
competitors are the major global investment banks, including Morgan Stanley,
Credit Suisse and Goldman Sachs, as well as corporate investment banks,
including Bank of America, Barclays, Citigroup, BNP Paribas, Deutsche Bank and
JPMorgan Chase. We also compete with boutique investment banks and fintech firms
in certain regions and with regard to certain products.

®Refer to “Working in partnership” in this section for examples of collaboration between the business divisions

What we offer

Through our Global Banking business,
we advise our clients on strategic business opportunities and help them raise
capital to fund their activities.

Our Global Markets business enables our
clients to buy, sell and finance securities on capital markets across the globe
and to manage their risks and liquidity. Furthermore, in
Investment Bank Research, we offer clients key insights on major financial
markets and securities around the globe. Separately, our team of experts in UBS Evidence Lab Innovations specializes in
creating insightful data sets on diverse topics for companies of all sizes,
spanning more than 30 countries and 50 sectors. We seek
to develop new products and solutions that are consistent with our capital-efficient
business model. These are typically related to new technologies or changing
market standards.

®Refer to “Clients” in the “How we create value for our stakeholders”
section of this report for more information about innovation and digitalization

Since 2005, we have addressed increasing
client demand for sustainable investing by providing thematic and sector
research. We also provide investment solutions through socially responsible and
impact exchange-traded funds and index-linked notes. In addition, we offer
capital-raising and strategic advisory services globally to companies that make
a positive contribution to climate change mitigation and adaptation.

How we serve our clients

We interact with our clients
digitally and in person. In Global Banking, we leverage our intellectual
capital and relationships to deliver high-quality solutions for our clients. In
Global Markets, we use our execution capabilities, differentiated research
content, bespoke solutions, client franchise model, and our global platform to
expand coverage across a broad set of institutional and corporate clients. In Investment Bank Research, we deliver
high-quality differentiated research to our institutional clients using a wide
range of methods, including UBS Neo, our multi-channel platform.

How we are
organized

Our
business division is organized into the following three units: Global Banking,
Global Markets, and Investment Bank Research and UBS Evidence Lab Innovations.
We are governed by the executive, operating, risk, and asset and liability
committees. Each business
unit is organized globally by product.

Our Corporate Center provides
services to the Group, with a focus on effectiveness, risk mitigation and
efficiency. Corporate Center also includes the Non-core and Legacy Portfolio
unit.

How we are organized

Corporate Center

The major areas within Corporate
Center are Group Chief Operating Officer (Group Technology, Group Corporate
Services, Group Human Resources and Group Operations), Group Treasury, Group
Finance, Group Legal, Group Risk Control, Group Communications & Branding,
Group Compliance, Regulatory & Governance, UBS
in society, and Non-core and Legacy Portfolio.

Over recent
years, we have progressively aligned our support functions with our business
divisions. We operate the Group with the vast majority of these functions
either fully aligned or shared among business divisions, where they have full
management responsibility. By keeping the activities of the businesses and
support functions close together, we increase efficiency and create a working
environment built on a culture of accountability and collaboration

The Non-core
and Legacy Portfolio, a small residual set of activities in Group Treasury and
certain other function costs mainly related to deferred tax assets and costs
relating to our legal entity transformation program are retained centrally.

Since our first quarter 2019 report and in
compliance with IFRS 8, Operating Segments, we provide results for total
Corporate Center only and do not separately report Corporate Center – Services,
Group Asset and Liability Management (Group ALM) and Non-core and Legacy
Portfolio. Furthermore, we have combined Group Treasury operationally with
Group ALM and call this combined function Group Treasury.

®Refer to the “Significant accounting and financial reporting
changes” section and “Note 1 Summary of significant accounting policies” in the
“Consolidated financial statements” section of this report for more information
about the changes in the structure of Corporate Center

Group Treasury

Group Treasury manages the structural
risk of our balance sheet, including interest rate risk, structural foreign
exchange risk and collateral risk, as well as the risks associated with our
liquidity and funding portfolios. Group Treasury serves all business divisions
and its risk management is fully integrated into the Group’s risk governance
framework.

Non-core and Legacy Portfolio

Non-core and Legacy Portfolio manages
legacy positions from businesses exited by the Investment Bank, following a
largely passive wind-down strategy. It is overseen by a committee chaired by
the Group Chief Risk Officer. The portfolio also includes positions relating to
legal matters arising from businesses that were transferred to it at the time
of its formation.

®Refer to “Note 21 Provisions and
contingent liabilities” in the “Consolidated financial statements” section of
this report for more information about litigation, regulatory and similar
matters

20

Our environment

Current market climate

Global economic developments in 2019

In a year characterized by strong
equity markets, ultra-low volatility and an inflection in interest rates, the pace
of the global economy slowed on a broad basis in 2019. World GDP grew by 3.1%,
which was substantially lower than the 3.7% growth achieved in 2018 and
represents the weakest growth rate since the financial crisis.

US GDP increased 2.3%, compared with 2.9% in
2018, as trade tensions between the US and China hindered business investment
and the boost from tax cuts introduced in December 2017 ebbed.

Trade tensions represented an even more
serious drag on growth in the eurozone, which relies more than the US on global
trade, manufacturing output, and business investment. Growth in the eurozone decreased
to 1.2% in 2019, compared with 1.9% in 2018. Germany’s economy expanded by only
0.6%, after a 1.5% increase in the previous year. Outside the Eurozone, Swiss
growth decreased as well, to 0.8%, compared with 2.8% in 2018.

China’s government attempted to partially
offset the effects of increasing tariffs on its exports to the US by reducing bank
reserve requirements and providing extra fiscal leeway to local governments. However,
this stimulus was limited by concerns over high leverage in the economy. GDP
growth decreased to around 6.1%, compared with 6.7% in 2018.

In other leading emerging economies, growth
slowed or stabilized at low levels. The economy of India, which until recently
had been one of the world’s fastest-growing major nations, expanded by 5%, compared
with 6.1% in 2018. Momentum was weakened by the problems of the shadow-banking
sector, which has been reducing the availability of credit to consumers. The
Mexican economy, meanwhile, was roughly flat after expanding 2% in 2018, and
Brazil’s growth rate decreased to 1.1% from 1.3%.

Major central banks were able to keep their
accommodating monetary policies in place in 2019, given that low inflation
rates persisted. Eurozone inflation stayed below the European Central Bank’s (the
ECB) target (of at or below 2%), at around 1.2% for
the year. The ECB cut its deposit rate from negative 0.4% to negative 0.5%. US
inflation was close to the target at 1.8%, permitting three quarter-point rate
cuts over the course of the year to between 1.5% and 1.75%.

Equity markets rallied, with all major indices
advancing. The MSCI All Country World Index gave a total return of 27% in US
dollars. The S&P 500 index in the US returned 31%, while the
technology-heavy Nasdaq Composite gained 37%. China’s CSI 300 was up 41% in
local currency terms. Less well-performing markets included the UK’s FTSE 100
and Hong Kong’s Hang Seng, which both returned 17% in local currency terms.

It was also a favorable year for investors
holding government bonds. The yield on 10-year US Treasury bonds fell around
80 basis points to 1.9%. The yield on the German Bund of the same tenor
fell 40 basis points to negative 0.2%.

Economic and market outlook for 2020

We expect continued sub-trend growth
in the coming year, and the global economy to continue expanding at about the
same pace as in 2019. Consumer spending has remained robust in much of the
world, especially in the US, where it is supported by a vibrant job market. The
year ended with news of a “Phase 1” trade deal between the US and China, along
with indications that tensions between the two powers may lessen. Not only did
the agreement withdraw planned tariff increases and reverse some existing
tariffs, it also moved negotiations forward in other areas of contention, such
as intellectual property protection and US access to China’s financial services
market. While this truce could be fragile and the US–China rivalry is not about
to end anytime soon, the deal appears to reduce the risks to the global economy
and business investment.

The UK left the European Union on 31 January
2020 and has entered a transition period in which the UK now faces a race to
conclude talks on a trade deal with the EU ahead of the end of its transition
period on 31 December 2020.

The next major
political focus for markets will be the US election in November, which could
generate higher volatility and affect key US sectors, such as technology,
energy, finance and health care.

Against a backdrop
of sluggish growth and continued political risk, we believe central banks will
be in no rush to raise rates. We do not expect the US Federal Reserve to
increase rates in the coming year, barring an unexpected shift in the
trajectory of the economic data. Rates are unlikely to rise again until 2021.
We expect the ECB to cut rates to negative 0.6%, with the Swiss National Bank
maintaining rates at a negative 0.75%.

The outbreak of novel Coronavirus or Covid-19
in China and its subsequent spread to other countries is likely to increase
investor uncertainty. Although our base economic forecast is that the outbreak
of Covid-19 will be contained and the effect on full-year economic growth will
be relatively limited, the virus and containment measures are likely to have at
least a short-term adverse effect on economic activity in China and other
affected countries, with a collateral impact on the global economy. A
significant rise in the number of Covid-19 infections, infections in a wide
range of countries and regions, or a prolongation of the outbreak, could increase
the adverse economic effects.

In terms of investing, stocks in most major
markets are trading above historical averages on a price-to-earnings basis. As
a result, we believe equity market returns are more likely to be driven by
earnings growth than by a further expansion of multiples. Markets should also
be supported by continuing economic growth in 2020. The risk of a recession
remains relatively low. Uncertainty over the effects of the Covid-19 outbreak
has substantially increased the macroeconomic risk to growth and this increased
risk has at least partially been reflected in recent declines in equity
markets.

22

Industry trends

While our industry was heavily
affected by regulatory developments over the past decade, technology has
clearly emerged as the main driver of change today and is expected to further
affect the competitive landscape as well as our products and operations going
forward. In parallel, our industry is materially driven by market and
macroeconomic conditions.

®Refer to “Current market climate” in this section for information
about global economic growth

Digitalization

Technology
is changing the way banks operate and we expect this to continue, in step with
exponential advances in computing capability, evolving customer needs and digital trends. Investment in technology is no
longer solely considered a means of making banks more efficient. Today, such investment
is the key to keeping banks flexible and competitive in a digitalized world,
and it creates the opportunity to develop new business models.

By connecting
across the financial industry ecosystem through our innovation labs, digital
factories, Future of Finance initiatives, and project collaborations, we aim to
remain at the forefront of the digital movement to drive client experience as
well as operational excellence. At the heart of our digital journey is the
focus on our clients and their evolving needs. The speed, scale, security, transparency
and precision that new technologies can offer enable us to create new services
and experiences for our clients.

We also aim to
improve operational efficiency by increasing the range of modernized and
modularized applications and infrastructure in our IT portfolio, as well as by
leveraging cloud technology and a growing number of front-to-back automated
systems and processes. Effective data management and protection are crucial to us.
The generated and curated data from our applications is protected under our
data management framework, and supports the development of responsible
artificial intelligence for better tailoring our client and employee
experience.

Consolidation

In the
financial services industry, many regions and businesses are still highly
fragmented. We expect further consolidation, with ongoing margin pressure, the search
for cost efficiencies and increasing scale advantages resulting from the fixed
costs of technology and regulation being the key drivers. Many banks also seek increasing
exposure and access to regions with attractive growth profiles, such as Asia
and emerging markets, through local acquisitions or partnerships. Lastly, the
increased focus on core capabilities or geographical footprints and the ongoing
simplification of business models to reduce operational and compliance risks
will result in further disposals of non-core businesses and assets.

New competitors

Our competitive environment is also
evolving. In addition to our traditional competitors in the asset-gathering
businesses, new entrants are targeting selected components of the value chain.
However, we have not yet seen a fundamental unbundling of the value chain and
client relationships, which might ultimately result in the disintermediation of
banks by new competitors. Over the longer term, we believe the entry into the
financial services industry of large platform companies could pose a
significant competitive threat, given their strong client franchises and access
to client data. Fintech firms are gaining momentum; however, they have not materially
disrupted our asset-gathering businesses to date. We see a trend in forging
partnerships between new entrants and incumbent banks, with the latter
acquiring technology from fintech firms, thus gaining an edge over competitors
in terms of technology, cost efficiency, and service quality.

Regulation

The post-2008 regulatory reform
agenda has largely been completed.
While some areas, such as funding in resolution, must still be fully addressed,
and the implementation of certain standards, such as the finalized Basel III
capital standard, is continuing on a national level, the focus is shifting from
regulation to supervision. In parallel, some regulators are reviewing the
efficiency of the new frameworks.

In general, regulatory-driven change
continues to consume substantial resources. In 2020, we expect further consideration
of adjustments to the Swiss too-big-to-fail framework, in particular focused on
additional liquidity requirements for systemically important banks, and the
national implementation of final Basel III rules. We expect continued work on
resolution-related reforms, including stress testing, and a sustained focus on conduct and anti-money laundering.
Furthermore, we are experiencing a surge in sustainability-related policy
proposals targeted at various aspects of financial services across the globe.
We also expect regulatory initiatives to address some of the more recent
challenges that could affect financial stability, such as shadow banking and
digital currencies.

Many of these developments are happening in
the context of increased protectionism, posing challenges to the provision of
cross-border financial services. Further restrictions with regard to market
access into the EU in particular would have a significant effect on Switzerland
as a financial center, affecting also UBS. Variations in how different
countries implement rules, and an increasing national focus, bring a risk of
additional regulatory fragmentation, which in turn may lead to higher costs for
us and new financial stability risks.

However, we believe
the adaptations made to our business model and our proactive management of
regulatory change put us in a strong position to absorb upcoming changes to the
regulatory environment.

®Refer to the “Regulatory
and legal developments” section
of this report for more information

Wealth creation

In 2018, global wealth overall grew
marginally, given a steep decline in equity market performance in the fourth
quarter. This trend was partially reversed in 2019, as equity markets rallied. Today,
half of global wealth is concentrated in the Americas, followed by Asia Pacific
(with approximately 30%) and the remainder in Europe, the Middle East and
Africa.1 By segment,2 approximately half of global wealth
is with high net worth individuals, ultra high net worth individuals hold
approximately 30% of global wealth, and the remaining approximately 20% is within
the affluent segment. Over the next four years, global wealth is expected to
grow by 5–10% annually.1 Regionally, wealth creation will likely be
driven by Asia Pacific and North America. The share of the Americas is expected
to remain stable over the next four years at approximately 50% of global wealth,
while the share of Europe, the Middle East and Africa is expected to further
reduce as Asia Pacific grows. In particular, China’s share of global wealth is
expected to grow to around 15% by 2023.

Wealth transfer

Demographic and socioeconomic
developments continue to generate shifts in wealth. By 2030 for example, USD 15.4
trillion of global wealth is expected to be transferred by individuals with a
net worth of USD 5 million or more, according to a 2019 report by Wealth-X.3
In addition, women now control more wealth than ever before: UBS’s 2019 report
titled “The billionaire effect – Billionaires insights 2019” found that the
number of female billionaires had grown by 46% in five years, outpacing the
growth of male billionaires. We are responding to the evolving wealth landscape
with a framework that addresses all aspects of our clients’ financial lives,
called UBS
Wealth Way. UBS Wealth Way
begins with discovery questions and a conversation with clients about what is
most important to them. We help clients organize their financial life along
three key strategies: Liquidity to help provide
cash flow for short-term expenses; Longevity for long-term needs; and Legacy for needs that go beyond their own and help improve the lives of
others, a key part of wealth transfer planning.

Shift into passive strategies

We note a continuing
trend of separation between low-cost, passive strategies and high-alpha active
and alternative strategies. Passive management is beneficial in an environment
with rising stock markets, such as the equity bull markets of the last decade.
At the same time, central banks’ monetary policies have kept interest rates at
historically low levels, which has had an effect on bond yields and other asset
classes. Investors searching for longer-term higher alpha than passive strategies
can provide have been diversifying their portfolios into real assets and
alternatives and we expect this trend to continue. We believe the breadth of
UBS Asset Management’s investment expertise allows us to meet client demands
across asset classes and strategies.

Retirement funding

Over recent years, the pension
industry has faced two key challenges: fundamental demographic shifts, such as
aging populations, and lower expected returns due to all-time low interest
rates.

Beyond structural answers to these
challenges, such as the progressive shift from defined benefit to defined
contribution pensions, we believe pension funds are reassessing their asset
allocation approach. Indeed, many pension funds are now allocating a higher
share of their portfolios to alternative investments, such as private equity,
hedge funds, real estate and infrastructure, in a search for higher-yielding
exposures.

We see this development as positive for UBS,
as these funds will likely need further support to define their investment strategy and target portfolio
allocation. In addition, our private banking and wealth management clients are
expected to need further financial and retirement planning advice, which we are
able to provide holistically through our wealth planning services.

1 Based on BCG Global
Wealth Report 2019.

2 The BCG Global Wealth
Report 2019 defines wealth segmentation as follows: wealth of greater than
USD 20 million to be classified as ultra high net worth individuals;
USD 1–20 million for high net worth individuals; USD 0.25–1 million
for affluent individuals.

3 A Generational Shift:
Family Wealth Transfer Report, issued by Wealth-X in 2019.

24

How we create value for our stakeholders

Stakeholder group

Stakeholder needs:

what do our stakeholders
expect from us?

Value proposition:

how we create value for
our stakeholders

Key topics discussed:

what was important to
our stakeholders in 2019

Stakeholder engagement:

how did we engage with
our stakeholders?

Clients

Advice on a broad range of products
and services from trusted experts

The option of personal interaction
with our advisors in combination with digital service anywhere, anytime
(convenient digital banking)

Top quality solutions and the highest
standards in terms of asset safety, data and information security, confidentiality
and privacy

A combination of global reach and local
service resulting in positive investment outcomes

Facilitation of economic development
that is sustainable for the planet and humanity

Maximization of our positive effect
and minimization of any negative effects on society and the environment

Proactive management of the
environmental and societal impacts of our business

Promoting significant and lasting improvements
in the well-being of communities in which we operate

Taking an active role in the
transition of our economy toward environmentally and socially sustainable
solutions

Sustainable finance

Our climate strategy

Our client and corporate philanthropy
efforts

Dialogs with regulators and
governments

Partnerships with social institutions

Community investments

Interaction with NGOs

Participation in forums and round
tables, as well as industry-, sector- and topic-specific debates

25

Our strategy, business
model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Clients

Our clients are the heart of our business. We are
committed to building and sustaining long-term relationships based on mutual
respect, trust and integrity. Understanding our clients’ needs and expectations enables us to best serve their interests and to create
value for them.

Our clients and what matters most to
them

There is no archetypal UBS client.
Our clients have varying needs, but each of them expects outstanding advice and
service, a wide range of choices, and an excellent client experience.

Global Wealth Management is focused on serving the unique
and sophisticated needs of high net worth and ultra high net worth individuals,
families, and family offices around the world, as well as affluent clients in
selected markets. We provide these clients with access to outstanding advice,
service, and investment opportunities from around the globe, delivered by
experts they can trust. Using a holistic, goals-based approach to
financial planning, we deliver a personalized wealth management experience and
work side-by-side with clients to help them realize their ambitions.

Our client-facing
advisors and the global teams that support them are focused on developing
long-term client relationships, which often span generations. Global Wealth
Management clients look to us for our expertise in helping them to plan for,
protect and grow their wealth, as well as helping them make some of the most
important decisions in their lives. From significant liquidity events to
professional milestones and personal turning points, we aim to give our clients
the confidence to move forward and achieve their goals. Through extensive
research into our clients’ preferences and goals, as well as broader analysis
of investor sentiment globally, we are constantly evolving our offerings to
meet the shifting priorities of today’s wealthy clients. This includes
investing in digital capabilities and developing products that help clients
fund their lifestyles and manage their cash flow, as well as offering guidance
on how clients can create a lasting and positive impact for their communities
and the causes about which they care the most. We have been recognized as the
leading global wealth manager for clients interested in sustainable investing,1
with a commitment to developing solutions that allow clients to align their
financial goals and their personal values.

®Refer to “Our focus on ESG” in this section for examples of how
sustainable finance solutions are used across our business divisions and for
the benefit of our clients

Personal & Corporate Banking serves a total of
approximately 2.6 million individuals and 128,000 firms. We provide services to
companies ranging from start-ups to large multi-nationals, including
specialized entities, such as pension funds and insurers, real estate
companies, commodity traders, and
banks. Personal & Corporate Banking clients look for financial advice based
on their needs at each stage of their individual or corporate journey. We aim
to deliver outstanding advice to them via our client advisors and also through digital
banking. Our clients demand convenience, 24/7 availability, security and value
for money. We provide clients with access to a
broad range of services and products offered in all relevant areas: basic
banking, investing, financing (including mortgages), retirement planning, cash
management, trade and export finance, global custody, and company succession,
among others.

In Asset Management, we deliver investment products and services
directly to approximately 3,000 clients around the world – including sovereign
institutions, central banks, supranational corporations, pension funds,
insurers and charities – as well as to Global Wealth Management and its
clients, wholesale intermediaries and financial institutions. Our clients seek global insights and a
holistic approach to tailoring solutions. By building long-term, personalized
relationships with our clients and partners, we aim to achieve a deep
understanding of their needs and to earn their trust. We draw on the breadth and depth of our global investment capabilities –
across traditional and alternative, active and passive categories – and provide
seamless access to world-class platform services to deliver the solutions they
need. We integrate sustainability into our financial analysis enabling us to help
clients meet their sustainability objectives and their fiduciary duties.

®Refer to “Investment Bank” in the “Our businesses” section of this
report for more information about the structural
changes in the Investment Bank

Our
advisory and content offering is underpinned by the research we provide. The
differentiated nature of this research, combined with UBS Evidence Lab
Innovations, which offers access to
insight-ready data sets for thousands of companies, aims to give clients an
informational edge when it comes to understanding markets. As a new offering
for 2019, we have established the UBS Research Academy, where our fundamental analytics team provides training for
institutional investors on all aspects of fundamental investing, leveraging the
best of the UBS Research and UBS Evidence Lab
Innovations platforms.

Our clients place the highest priority on the confidentiality and
security of their data. The protection of our clients’ data is of the utmost
importance to us and we have comprehensive measures in place designed to ensure
that data confidentiality and integrity are maintained. We are investing in our
IT platform to preserve and improve our IT security standards, while enabling
our clients to have secure access to their data via our digital channels. The volume, level of sophistication and impact of cyberattacks constantly
increase, and we aim to maintain a robust and agile cybersecurity and
information security program to manage cyber risk.

Enhancing the client experience through
innovation and digitalization

We strive to streamline and simplify interactions
with our clients through front-to-back digitalization and innovations.

In Global Wealth Management, we develop and
deploy digital tools that preserve and enhance the value of human relationships.
Clients expect the convenience and speed that technology offers but,
simultaneously, consider personal communication with our advisors to be more
important than ever. Modern technology that our advisors use enables them to
spend more time with clients. And our clients appreciate digital tools that
improve their experience, such as easy ways to view their portfolios, access to
research that is tailored to their needs, and multiple ways to communicate with
their advisors. In 2019, we introduced a number of new tools to help deliver on
those expectations. For example, our Asset Wizardplatform provides ultra high net worth
clients in the US with consolidated and sophisticated performance and risk
analytics for their assets held at UBS and across multiple banks, portfolios,
managers, and locations. Also, in Asia, we launched the UBS Advisor
Messaging for WhatsApp, allowing for real-time
conversations between clients and advisors, to create a better client
experience. And we continue to make progress by executing our multi-year
strategy to serve clients globally from two platforms: the Wealth Management
Americas Platform in the US and the Wealth Management
Platform outside the US. Our core investment solutions consist of: UBS Manage, a discretionary mandate solution where we use our expertise to
invest clients’ assets according to a predefined investment strategy; UBS Advice, which adds portfolio monitoring and investment recommendations
based on an agreed investment strategy to self-directed accounts; and UBS Transact, a self-directed account providing clients access to UBS execution capabilities
and the UBS
House View. All our solutions draw on our broad range of investment instruments
across stocks, bonds, currencies, structured products, investment funds and
alternative investments.

Personal & Corporate Banking launched
several initiatives in 2019. Effective 1 November 2019, we have established a
new business area, Digital Platforms & Marketplaces, which reflects our commitment to engage in new digital business
models. In addition to the mortgage platform UBS Atrium, which we launched in 2017 and is directed at corporate and
institutional clients, UBS is set to introduce a mortgage platform for private
clients in the first half of 2020. We launched new tools for our client
advisors aimed at improving the in-branch advisory experience for clients, so
that we are able to suggest the right products that match the clients‘ needs. Thanks
to our new mortgage workflow, we have been able to reduce contracting time
substantially, from 10–15 days for extensions to 24 hours. We also further
simplified our digital banking platform (for both mobile and desktop) and added
new services, in addition to expanding the number of possible payment transaction
currencies to more than 120. Our clients can now pay in stores directly with
their smartphones and a wide array of wearables via Mobile Pay
and Swatch Pay. Furthermore, we
have introduced the ability to pay parking fees via Twint,
which has more than 1.5 million users in Switzerland. As of October 2019, our clients can access we.trade, a blockchain-based trade finance platform, which was the first
such platform to be launched by a Swiss bank. Recognizing changing client needs
and growing demand from start-up companies for a broader offering, we have
launched UBS
Start Business, which includes digital
accounting, mentoring for business planning, and many other services in
addition to the banking services UBS offers. The attractive offering aims to
assist young entrepreneurs in every stage of their business’s journey. Similarly, we bundle our digital offering
for small companies in UBS Digital Business,
which provides the convenience and leading digital solutions that small
companies look for. We have also introduced our vendor leasing solution, an
online tool that allows vendors to provide leasing proposals directly to their
clients (based on online credit decisions) and to generate contracts. For
corporate clients, we have made available the new UBS Payment
Tracking service (SWIFT global payments
innovation).

In Asset Management, we are investing in new
tools and technologies, as well as our alternative data capabilities, to support our teams’ investment decision-making processes and
enhance client service. In addition, our operational excellence programs are
focused on building a scalable and globally integrated operating platform to
better enable our teams to deliver the full breadth of our capabilities to
clients around the world.

27

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

The Investment Bank strives to be the digital investment bank of the
future, with innovation-led businesses that drive efficiencies and solutions.
We set up theUBS Investment
Bank Innovation Lab to help connect business
teams in order to leverage best practice, build and test proofs of concept
safely and quickly, and inspire a culture of innovation. We see increasing
interest from clients in financial and alternative data sets that they can incorporate
into their models. In response, we set up UBS Data Solutions to meet those needs through a centralized robust data processing
and distribution platform.

We strive to
develop new products and solutions that are consistent with our
capital-efficient business model. These are typically related to new
technologies or changing market standards. Examples include FX spot & STIR
tree E-pricing, which provides client-tailored
pricing streams and hedging optimization, and Technology Enabled
Sales, which enables faster delivery and distribution of tailored content matched
to our clients’ interests. During 2019, we also launched the client portal ofUBS Evidence Lab Innovations as part of the firm’s strategy to expand our value proposition in
the alternative data space, which relates to innovative ways to capture data critical
for investment decisions. We also set up UBS Neo, our
multi-channel platform, and the One Clientservice model, which aims to drive superior client outcomes via
collaboration, technology and data-driven client intelligence.

Engaging
with our clients

Communication with
our clients enables us to understand their needs and what matters most to them.
We use a variety of channels to
engage with clients, including regular client relationship / service meetings
where we monitor feedback and satisfaction, as well as various corporate
roadshows and dedicated events. We also engage with our clients while
supporting cultural and sports events across Switzerland.

We conduct client events on a regular basis and
on a wide array of topics. For example, in Personal
& Corporate Banking, we
have financing and retirement planning events, and a dedicated event for the CFO
community. In the Investment Bank, we host around 350 conferences and
educational seminars globally throughout the year, covering a broad range of
macro, sector, regional and regulatory topics. More than 50,000 clients attended
such events in 2019, providing insight and access to our own opinion leaders,
policy makers and leading industry experts. In Global Wealth Management, we
engage with clients in a range of ways, from personalized private briefings
with subject matter experts, to segment-specific events, to large-scale
gatherings such as UBS Wealth Insights, our
flagship Pan-Asian investment forum series, which attracts more than 3,000
clients every year. In Asset
Management, a consistent program of engagement takes place throughout the year.
Thematic events, such as the UBS Reserve Management Seminar and the Sovereign Investment Circle, bring together institutional investors to debate relevant topics
and share best practices. Our experts also produce insightful thought
leadership on markets and assets that is regularly shared with clients, as well
as frequently meeting investors to answer questions, clarify the investment strategy
or discuss issues that can affect markets.

How we
measure client satisfaction

We utilize different measures to regularly
assess our achievements and the satisfaction of our clients.

Global
Wealth Management is increasingly leveraging technology and analytics software
to collect client feedback. In 2019, we began introducing a digital feedback
tool to supplement more traditional survey methods. The tool allows Global
Wealth Management to survey clients about their satisfaction with their advisors
and UBS, as well as to identify additional financial needs. Advisors are
provided with real-time access to client feedback, enabling them to address
concerns and to follow up on new topics of interest. The tool was piloted in
selected markets in 2019 and is expected to be rolled out more broadly throughout
2020.

We conduct an annual
client survey in Personal & Corporate Banking. We
have been conducting client surveys in Switzerland since 2011, consistently
covering all private and corporate client segments annually since 2015. Clients
assess their satisfaction with regard to various topics (e.g., UBS overall,
branches, client advisors, products, services) and indicate further product or
advisory needs. Survey responses are distributed to client advisors, who subsequently
follow up with each respondent individually. In 2019, we introduced a new
machine learning model which enables us to identify the importance of internal
factors (e.g., advisors, products, prices) and external factors (e.g., media
impact, market development) with regard to overall satisfaction scores.

In Asset Management, we conduct regular
surveys, inviting institutional and wholesale clients across all our markets to
participate. They are asked about their satisfaction with client service,
products and solutions, as well as other factors relevant to their investments.
The results are analyzed to identify focus areas to improve client satisfaction.

We
thoroughly evaluate the feedback we receive, including complaints from clients,
and take measures to address key themes identified. In 2019, clients
specifically raised sustainable finance as a key priority, which provided confirmation
that we are aligned with our clients’ preferences in expanding our sustainable
finance offering.

28

Clients
(additional information)

Quality feedback management system

We have a Quality Feedback system within
Global Wealth Management (GWM) and Personal & Corporate Banking (P&C),
which provides a comprehensive and systematic platform to receive and process
feedback and suggestions from both clients and employees. Feedback is received
in a wide range of formats, including written, electronic, verbal (e.g.,
comments made to employees in our branches), through social media and via the
Swiss Banking Ombudsman.

Client feedback, including complaints and
suggestions, is of crucial importance, as it supports the development and
introduction of new products and services as well as the adaptation of our
offering in a client-oriented manner. By addressing client feedback, we strive
to strengthen client relationships, improve client satisfaction and make a
tangible improvement to client service and overall banking services. Having a
wide variety of quality feedback from our clients enables us to systematically
evaluate and review our actions. By sharing their views, clients contribute to
quality improvements at all levels.

We strive to respond directly to each individual
who provides feedback. On significant topics and key developments, we also
provide a collective response in our external reporting.
In 2019, key topics and enhancements included some targeted products and
services that centered mostly around digital banking functionalities. These
stemmed in particular from requests and improvement suggestions for existing
and new features and queries regarding access and security.

Feedback from employees (i.e., quality tips and
ideas) that is based on their knowledge and experience in improving and
updating products, processes and services helps to foster creativity and
innovation.

Suitability

Clients expect to be provided with
products and services that are suitable for them. This is particularly the case
in the divisions where we serve personal clients as opposed to institutions.

In nearly all of the countries where we do
business, this expectation has been turned into a legal or regulatory
requirement for banks acting as financial advisors. Most jurisdictions also
require the systematic assessment and documentation of the suitability of
products (including third-party products) and services, including compliance
with applicable eligibility criteria and sales restrictions. These standards
are reflected in local policies and procedures as well as in the respective
local control framework. The European Union’s Markets in Financial Instruments
Directive (MiFID) and the Swiss Financial Services Act (FinSA) are examples of
our reflection and implementation of specific standards required by regulators
as part of a local control framework. Other locations apply similar standards
as required by the relevant local regulators.

To meet both client expectations and
regulatory requirements, we have established comprehensive rules for assessing
the suitability of products and services. These rules are designed to align the
assets in a customer’s portfolio with their defined risk profile, and the
customer is advised in line with his or her needs (i.e., client suitability).
In addition, the rules require product documentation to contain appropriate and
easily understandable information on its features, target audience and the
scenarios in which the product can be used, as well as a balanced
representation of the associated opportunities and risks (i.e., product
suitability).

Suitability framework

In the GWM and P&C divisions, a
comprehensive suitability policy framework is in place. This sets out the
structured advisory process governing the way we advise and implement agreed
solutions and also document the steps taken during this process. In addition to
other purposes, it comprises requirements for monitoring and controlling
activities that aim to capture tail risks. A revised version of this policy
entered into force on
1 January 2018. The Investment Bank (IB) and Asset Management (AM) take their
guidance from UBS's suitability principles and have implemented processes to
ensure appropriate oversight of suitability requirements where applicable.

In this framework, we distinguish between
client and product suitability. Client suitability refers to the alignment
between the investor profile of the client and the products and services that
are recommended or made available to the client (or already held in his or her
portfolio), including risk information and disclosure. Product suitability
refers to a consistent set of standards applied by a product management unit to
define for which specific investors a product may be suitable.

Client suitability

GWM and P&C have established a
structured advisory process with four distinct steps – understand, propose,
agree and implement, and review. This process is supported by a number of forms
and tools that are available to client advisors. In the first step
(understand), these forms and tools support the initial identification of a
client’s investor profile, including but not limited to investment objectives
and risk ability. In the second step (propose), they serve to help client
advisors identify an appropriate investment strategy for a specific client
portfolio. Furthermore, a number of tools and platforms have been established
to help client advisors match a client’s investment strategies with appropriate
investment proposals and to support the review step. The IB and AM have
established cross-functional governance committees to ensure oversight for
client suitability where specific criteria or triggers are met.

Product suitability

Advisory
platforms and tools divide products according to their risk characteristics and
in doing so help clients and client advisors to properly assess the impact of
investment products and services on a client’s portfolio. Additional processes
are in place to make product documentation available to both client advisors
and clients. Finally, specific legal documentation is required for certain
products with specific risks (e.g., hedge funds).

29

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Divisional approach to suitability

Primary ownership of suitability risk
and the responsibility for addressing it is owned by the business. The
suitability policies applicable to GWM, P&C, IB and AM make this clear.
Accordingly, we have pursued a divisional approach to ensure compliance with
rapidly changing regulatory regimes, while also addressing particular
suitability obligations and remediation of identified gaps relating to the
divisions.

Monitoring and controls

Monitoring and controls for
suitability follow a three-tiered approach. The first-level controls are
conducted by the business risk management team under its Origination Control
Framework, a set of controls designed to prevent and detect operational risks
that arise within the front unit and to ensure that residual risk corresponds
to risk appetite. The second-level controls are performed by Compliance &
Operational Risk Control as Global Minimum Control Standards, which are part of
the overall Operational Risk Framework. These controls focus on both a
check-the-checker approach, and thematic, deep dive reviews. The third-level
controls are exercised by Group Internal Audit, as part of its annual audit
plan.

After-sales
communications

The UBS client experience also
includes after-sales communication. Again, this communication is, supported by
a number of tools and platforms, including ready-to-use reporting and
presentation material.

Accessibility

We ensure
that our facilities and services are accessible to everyone regardless of
disability, capability or technology. We are continuously optimizing our
websites as well as our e-banking and mobile banking platforms to fit the
requirements for an AA rating for accessibility (i.e., WCAG 2.0). All cash
machines have access key buttons and PIN keypads that are equipped for the
visually impaired. Additionally, all ATMs are enabled with voice output through
clients’ headphones, covering all functions including cash deposits. Around 100
ATMs are positioned especially for people with restricted mobility. All 40 of
our free-standing cash machines correspond to recommendations made by the
Americans with Disabilities Act Accessibility Guidelines (ADAAG).

30

Our focus on ESG

Our firm is in a powerful position to
contribute toward achieving the 17 United Nations (UN) Sustainable Development
Goals (the SDGs) by integrating sustainability in our mainstream offerings,
through new and innovative financial products with a positive effect on the
environment and society, and by advising our clients on their philanthropic works.
Our goal is to be the financial provider of choice for clients who wish to
mobilize capital toward the achievement of the SDGs and the orderly transition
to a low-carbon economy. We are shaping the landscape of sustainable finance by
using thought leadership, innovation and partnerships to support clients in
their sustainability efforts.

Our
clients are increasingly interested in sustainable finance, including
sustainable investing (SI), which is especially attractive if it can reduce
risk or improve returns. More than 80% of wealthy individuals are interested in
sustainable investing and 45% already hold sustainable investments.1
With regard to asset owners across the globe, 78% are integrating
environmental, social and governance (ESG) factors into their investment
process.2 Switzerland, for example, saw an 87% asset growth in
institutional sustainable investments in 2018 (compared with 2017),3
and the early indicators are that this growth continued throughout 2019.

Our key public commitments to sustainable
finance

In 2019, we became a
founding signatory of the UN Principles for Responsible Banking (the
Principles). The Principles constitute a comprehensive framework for the
integration of sustainability across banks. They define accountabilities and
require each bank to set, publish and work toward ambitious targets.

Before signing up to the Principles, UBS had
already been strongly committed both to maximizing positive effects through our
sustainable business activities and to minimizing negative impacts. While our
firm’s growing range of sustainable finance products and services supports the
former, our environmental and social risk framework helps us to better
understand and respond to potential risks to the environment and human rights.

Our Asset
Management business division is among the signatories of the PRI (the Principles
for Responsible Investment). The PRI organization supports the signatories in
incorporating ESG factors into their investment and ownership decisions. In
2019, UBS also became one of the inaugural members of the CEO Alliance on
Global Investors for Sustainable Development, which is committed to scaling up
and speeding up efforts to align business with the SDGs. The Alliance is aimed
at harnessing the insights of private sector leaders on ways to remove impediments
and
introduce solutions for scaling long-term investment for sustainable
development in line with the SDGs.

Since 2017, we have presented white papers to
the World Economic Forum (the WEF) putting forward recommendations for ways in
which private capital can achieve the SDGs, while also outlining our own
actions and pledges in that regard. For the WEF annual meeting in 2020, our
white paper focused on climate action and the ways in which investors can
mobilize private and institutional capital toward the orderly transition to a
low-carbon economy. In response, UBS has developed a Climate Aware framework.

We actively support the development of
industry standards. In 2019, we contributed to the writing of and signed the
International Finance Corporation’s Operating Principles for Impact Management.
These Impact Principles provide a standard for impact investing, in which
investors seek to generate positive impact for society alongside financial
returns. We also contributed to a report by the Sustainable Finance Working
Group of the Institute of International Finance on sustainable investment
terminology.

®Refer to the Sustainability Report 2019, available from 5 March 2020
under “Annual reporting” at www.ubs.com/investors, for our key documents,
frameworks and external commitments, and for our climate disclosure following
the recommendations of the Task Force on Climate-related Financial Disclosures

What is our governance on ESG?

Our governance framework on
sustainability supports the creation of long-term value. Our firm’s sustainability
activities, including sustainable finance, are overseen at the highest level of
our firm and are founded in our Code of Conduct and Ethics.

®Refer to the Sustainability Report 2019, available from 5 March 2020
under “Annual reporting” at www.ubs.com/investors,
for the sustainability governance chart

We regularly review whether our governance
framework continues to reflect our ambitions with regard to sustainability. In
2019, we therefore decided to further sharpen our focus on sustainable finance
and we are now establishing a Sustainable Finance Steering Committee. It will
be comprised of senior business leaders engaged in our firm’s sustainable
finance efforts, who will work together to ensure that we continue to drive
innovation and develop expertise and thought leadership regarding sustainable
finance. The Chair of the Sustainable Finance Steering Committee is a member of
the UBS in society Steering
Committee.

1UBS Investor Watch on the Year Ahead, November 2019.

2UBS Asset Management and Responsible Investor magazine, ESG: Do You
or Don’t You?, June 2019.

3 Swiss Sustainable
Investment Market Study 2019, June 2019.

31

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

How do we
define sustainable finance?

Sustainable finance refers to any form of financial service that integrates ESG criteria
into business or investment decisions. We provide sustainable finance solutions
across all our business divisions and to all our client groups (as shown in the
“Key achievements in 2019” chart on the next page), with a particular focus on
sustainable investing.

Sustainable investing is an approach that seeks to incorporate ESG considerations into
investment decisions. SI strategies seek to achieve a positive environmental or
social impact and/or align investments with an investor’s values regarding ESG
topics, while aiming to improve portfolio risk and return characteristics. In
the main, we identify three approaches of sustainable investing: exclusion
(individual companies or entire industries are excluded from portfolios if
their areas of activity conflict with an investor’s values); ESG integration
(which combines ESG factors with traditional financial considerations); and
impact investing (which is designed specifically to help generate a positive
social or environmental impact alongside financial returns).

We were among the early movers in developing
terminology to describe our sustainable investing activities and to
consistently report on them. We are, however, conscious of the need to simplify
and standardize the terminology for sustainable finance, which will help to
develop and expand that market. We are therefore actively involved in the
relevant discussions and are committed to reflecting pertinent changes to
terminology in our reporting.

Core sustainable investments1

For the year ended

% change from

USD billion, except
where indicated

GRI2

31.12.19

31.12.18

31.12.17

31.12.18

Core SI products and
mandates

Integration – sustainability focus3

FS11

46.4

20.0

12.8

132.4

Integration – ESG integration4

FS11

372.3

224.5

63.2

65.9

Impact investing5

FS11

9.1

4.7

2.8

92.1

Exclusions6

FS11

52.2

50.3

93.0

3.7

Third-party7

FS11

8.5

13.4

9.8

(37.0)

Total core sustainable
investments

FS11

488.5

312.9

181.7

56.1

UBS total invested assets

3,607.0

3,101.0

3,262.0

16.3

Core SI proportion of total invested assets (%)

FS11

13.5

10.1

5.6

1 All figures are based on information available in January
2020. 2 FS stands for the performance indicators defined in the Financial
Services Sector Supplement of the Global Reporting Initiative reporting
framework. 3 Strategies where sustainability is an explicit part of the
investment guidelines, universe, selection, and/or investment process. 4
Strategies that integrate environmental, social, and governance (ESG) factors
into fundamental financial analysis to improve risk / return. 5 Strategies
where the intention is to generate measurable environmental and social impact
alongside financial return. 6 Strategies that exclude companies from
portfolios where they are not aligned to an investor’s values. Includes
customized screening services (single or multiple exclusion criteria). 7 SI
products from third-party providers applying a strict and diligent asset
selection process; the selection criteria have been reviewed for the end of
2019 reporting cycle, following a stricter approach from the provider of
sustainability ratings. Excludes third-party products that went through a
systematic GWM onboarding process, now counted under “Integration –
sustainability focus.”

What do we offer?

We support clients’ sustainability
efforts through thought leadership, innovation and partnerships, and we strive
to incorporate ESG factors into the products and services we provide. We
support corporate and institutional clients who want to generate positive
environmental and societal impact using our corporate advisory expertise or by
directing capital through our lending or investment capacity. We assist private
and institutional clients with their desire to invest in accordance with their own
social and environmental objectives, and we are proactive in discussing these
issues with them.

Through
our Philanthropy Services platform, we are partnering with clients to manage
their philanthropy and maximize their impact, by offering expert advice,
carefully selected programs from UBS Optimus Foundation, and innovative social
financing mechanisms, such as development impact bonds.

In 2019, we noted strong momentum in our
sustainable finance activities. A key indicator is the development of our core SI
assets, where we managed to more than double penetration, from 5.6% of total
invested assets in 2017 to 13.5% (USD 488 billion) in 2019 (2018: 10.1% or
USD 313 billion). Core sustainable investments are SI products that
involve a strict and diligent asset selection process through either exclusions
(of companies / sectors from portfolios where the companies / sectors are not
aligned to an investor’s values) or positive selections (such as best-in-class,
thematic or ESG integration and impact investing).

Norms-based screening assets, i.e., assets
that fall under the application of a UBS policy1 and do not
otherwise qualify as a core sustainable investment, amounted to USD 818
billion as of 31 December 2019 (up from USD 797 billion in 2018). Total
sustainable investments, including norms-based screening assets, accounted for
USD 1,306 billion (2018: USD 1,110 billion), or 36.2% (2018: 35.8%),
of our total invested assets.

1 The assets in
discretionary mandates, in UBS’s actively managed retail and institutional
funds, as well as in our firm’s proprietary trading book, are subject to our
firm’s policy on the prohibition of investment in and indirect financing of
companies involved in the development, production or purchase of anti-personnel
mines and cluster munitions.

32

33

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Our investor base is well diversified.
A substantial proportion of our institutional shareholders are based in the US,
the UK and Switzerland.

®Refer to the “Corporate governance” section of this report for more
information about disclosed shareholdings

Cost- and
capital-efficient revenue growth

We aim to drive
higher and superior returns by growing and leveraging our unique, integrated
and complementary business portfolio and geographic footprint. Our Global
Wealth Management business is well positioned to take advantage of two secular
trends: wealth transfer and wealth creation, partly driven by continued
economic growth, particularly in Asia, where China is opening its financial
markets. Each of our businesses has initiatives to achieve revenue growth and
improve operating efficiency.

®Refer to “Industry trends” in the “Our environment” section of this
report for more information about wealth creation and wealth transfer

We aim to balance growth opportunities with
cost and capital efficiency in order to drive attractive risk-adjusted returns
and sustainable performance.

Our primary measurement of performance for
the Group is return on common equity tier 1 capital (CET1), as regulatory
capital is our binding constraint and drives our ability to return capital to
shareholders.

®Refer to the “Performance targets and measurement” section of this
report for more information

Shareholder returns

We aim to increase our ordinary
dividend per share by USD 0.01 each year, and to return excess capital
through share repurchases. We consider business conditions and any
idiosyncratic developments when determining excess capital available for share
repurchases.

Alignment of interests

We aim to align the interests of our
employees with those of our equity and debt investors. This is reflected in our
compensation philosophy and practices.

®Refer to “Our compensation philosophy” in the “Compensation” section
of this report for more information

Communications

Our Investor Relations function serves as the primary point of contact between
UBS and all shareholders. Our senior management and the Investor Relations team
regularly interact with the institutional investors community, financial
analysts and other market participants, such as credit rating agencies. Clear,
transparent and relevant disclosures, together with regular and direct
interactions with existing and prospective shareholders, form the basis for our
communications. The Investor Relations team also relays the views of and
feedback from institutional investors and other market participants on UBS to
our senior management.

Investor
Relations and Corporate Responsibility work together and interact with those
investors focusing on sustainability topics relevant to UBS and society at
large.

®Refer to “Corporate governance” and “Information policy” in the
“Corporate governance” section of this report for more information

®Refer to “Society” in this section for more information about our
sustainability efforts

Shareholders and investors (additional
information)

Engagement with environmental, social
and governance (ESG) rating and research agencies

We
actively engage in dialogue with analysts at rating and research agencies. The
assessment of specialized agencies helps to evaluate our sustainability
performance and activities, and provides a useful means for benchmarking.

In 2019, we
provided detailed information on our sustainability performance to a range of
agencies, either
in response to questionnaires or via meetings or calls (with ESG analysts). Our
Sustainability Report regularly serves as a key source of information for these agencies.

34

Employees

Our employees drive our success. Our
employees work in 50 countries, are citizens of 136 nations and speak more than
150 languages. Their skills, experience and commitment enable us to deliver
innovative solutions for our clients, foster sustainable business success,
protect our reputation and drive the firm forward. As an employer, we attract,
develop and retain a diverse range of talent and aim to ensure there is a
workplace culture that supports and engages our employees, enabling them to build
their careers and unlock their full potential.

The keys to a strong corporate culture

Our three keys to success remain the
foundation of our strategy and culture. Together, they define what we stand for
as a firm and as individuals, and they drive our business strategy. We set out
on our cultural transformation in 2011, defining and then embedding our Pillars, Principles
and Behaviors into our core people management
processes. We conduct regular employee surveys to obtain feedback and ensure
continuous improvement, discussing the findings and further actions with our
employees. In 2019, responses indicated that employee engagement, appreciation
for our talent management practices, and pride in working at UBS were all above
the norm for financial services organizations.

®Refer to the foldout pages of this report for more information about
our Pillars, Principles and Behaviors

Engaging and enabling employees, instilling a
strong risk culture and promoting sustainability were culture-building
priorities in 2019. In this respect, our Group Franchise Awards program provided foundational support. This Group-wide initiative
rewards employees for cross-divisional collaboration and operational
effectiveness improvements.

We are convinced that leadership drives
culture, and culture drives performance. Great leaders are the key to developing
our people, client relationships and results. For many years, our House View on
Leadership has outlined what effective
leadership is at UBS, as well as what employees can expect. To help leaders
better adapt to continuous change and digitalization, we updated our House View in 2019 and integrated its precepts into all of our core HR
processes, including recruitment, performance evaluations, training, succession
planning and promotions. Characteristics such as innovation, curiosity and
agility complement our long-standing emphasis on inclusivity, sustainable
profits, accountability, cross-firm partnership and putting clients first. It
is an evolution of how we view leadership that creates an extraordinary
experience for our clients and our people.

35

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Hiring, developing and retaining talent

We are widely recognized as an
employer of choice and a great place to build a career. Key to our success is
our long-standing commitment to investing in our employees at every career
stage. It starts with recruitment, where our philosophy is to hire for
potential, considering the individual’s experience and competencies, learning
capabilities and agility, as well as digital and data savviness. We hired a total
of 10,080 external candidates in 2019. Our junior talent programs hired more
than 1,700 graduate and other trainees, interns and apprentices. We also continued
our insourcing and hiring activities in our Business Solutions Centers in
China, India, Poland, Switzerland and the US as part of our integrated
workforce strategy.

Our in-house UBS Universityfurther updated its curriculum in 2019
to emphasize future-skills development and personal growth for all employees,
with a new digital skills curriculum that builds knowledge about topics such as
blockchain, cloud computing, robotics and artificial intelligence. We also
launched a mobile learning app to enable employees to learn whenever and
wherever they want. We revamped our leadership development offering in 2019 to
ensure that our leaders have the skills they need to develop their businesses
and their people, and to lead effectively in the digital
transformation age. In 2019, our permanent employees completed more than 1,100,000
learning activities, including mandatory training on compliance, business and
other topics. This averaged to more than two training days per employee.

Along with line manager effectiveness, having
a wide range of learning and career development opportunities, as well as tools
to facilitate professional growth, are key drivers of employee engagement. In
this respect, our new Career Navigatortool, which was launched in June
2019, has been a game-changer. This online platform enables employees to
explore career paths and search for open roles that match their interests while
allowing our recruiters to find internal talent more easily. It also identifies
skill gaps with regard to new roles and interests and directly links to
learning opportunities to help fill these gaps.

We are committed to ensuring a workplace
where employees are fairly treated, with equal opportunities for all. We do not
tolerate harassment of any kind. Our global measures include employee and line
manager training, specialist expertise in handling concerns raised, and a
global employee hotline. A Harassment Guardian provides an independent view of
the firm’s setup, procedures and behaviors to prevent harassment and sexual
misconduct.

We pay for performance, and a strong
commitment to pay equity is embedded into our compensation policies. We conduct
regular internal, as well as independent external, reviews, with the aim of
ensuring that all employees are paid fairly, and we seek to address any
unexplained gaps.

®Refer to www.ubs.com/employerawards,
www.ubs.com/careers and the “Compensation” section of this report for
more information

Personnel by region

As of

% change from

Full-time equivalents

31.12.19

31.12.18

31.12.17

31.12.18

Americas

21,036

21,309

20,770

(1)

of which: USA

20,232

20,495

19,944

(1)

Asia Pacific

13,956

12,119

8,959

15

Europe, Middle East and Africa (excluding Switzerland)

12,918

12,620

11,097

2

of which: UK

5,704

5,782

5,274

(1)

of which: rest of Europe
(excluding Switzerland)

7,048

6,670

5,662

6

of which: Middle East and
Africa

166

168

161

(1)

Switzerland

20,691

20,840

20,427

(1)

Total1

68,601

66,888

61,253

3

1 The increase in workforce in 2019 and 2018 was mainly due to
insourcing initiatives and was more than offset by a decrease in external
staff.

36

The importance of diversity and inclusion

A widely diverse workforce that
reflects the experience of our global clients is important for our long-term
success. We therefore strive to shape a diverse and inclusive culture across
the firm to drive sustainable growth and innovation, deliver the best of UBS to
our clients, and build a better place to work for all employees.

Our broad view of diversity encompasses a
range of aspects, including gender, ethnicity, LGBTQ, disability, mental health
and inclusive leadership. We remain committed to narrowing our gender
representation gap, especially at the management level, through a global gender
diversity strategy and a wide range of supporting initiatives to hire, promote
and retain more women at all levels of the organization. We continue to make
progress toward our stated aspiration of increasing the representation of women
in management roles to one-third. In 2019, 25.2% of all employees in roles at
Director level and above were women, up from 24.7% in 2018.

Our UBS Career Comebackprogram, which was launched in 2016,
continues to help us increase our pipeline of female senior leaders.
Professionals looking to return to corporate jobs after a career break are
hired for permanent roles and supported with specialized onboarding, coaching
and mentoring. In 2019, Career Comeback expanded beyond its four established hubs
in the US, UK, Switzerland and India to become a global, year-round program. To
date, Career Comeback has helped 142 women and 8 men relaunch their
careers.

®Refer to www.ubs.com/diversity for additional information about our
priorities and commitments, and the Sustainability Report 2019, available from
5 March 2020 under “Annual reporting” at www.ubs.com/investors for our
management practices and detailed employee data, including gender- and
region-specific data

37

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Employees (additional information)

Engaging with our employees

Our employees are key to meeting our
clients' needs and our long-term business success. We therefore invest in our
employees by providing them with diverse learning opportunities, fostering
internal mobility and creating a rewarding work environment. Having regular
dialogue with employees helps ensure that we understand their needs.

Our senior leaders regularly update employees
on our business strategy, priorities and policies, as well as people management
topics such as goal setting, compensation, training, internal mobility, career
development, new technologies, and risk and compliance topics. We use a variety
of communication channels and events to ensure our employees are aligned with
our corporate culture and the firm’s
three keys – the Pillars, Principles and Behaviors. We promote collaboration
and efficiency efforts such as our Group Franchise Awards program, gender
representation initiatives like UBS Career Comeback, and we have an ongoing
focus on culture-building topics like inclusive leadership. We also support the
global philanthropic projects managed by the UBS Optimus Foundation. On a
regional and divisional basis, we celebrate and support involvement in our
community engagement and employee volunteering activities. We interact with employees
through a number of news and information channels such as our intranet, UBS
Connections (our internal social network), UBS TV and a number of other interactive
help and information sites.

Direct communication with employees also
takes place through individual and team meetings, emails, all-staff sessions
and the firm’s Quality Feedback system (see page 29). In 2019, employees in all
businesses and regions attended numerous town halls and small group meetings to
discuss relevant issues directly with senior management. For example, regular
“Ask the CEO” events allowed all employees globally to learn about (and ask
questions on) topics such as the firm’s strategy and direction. These events
are attended in person by local employees and broadcast live (and via replay)
on UBS TV. Additionally, an "Ask the GEB" event was held in New York
in December 2019.

We want our employees to be engaged and share
their views and have ample opportunities to influence the firm’s future. We
therefore regularly survey all our permanent employees to capture feedback on
how we are doing as a firm, and we use that feedback to improve as an
organization. As such, in 2019, all employees were asked to participate in a
global survey, and 83% did. We particularly wanted to know whether our firm’s
principles and behaviors are being lived up to, how effective our line managers
are and whether we are providing a positive and empowering work environment.
This year, 78% of participating employees indicated high levels of engagement,
79% agreed that their line manager(s) are effective, and 81% recognized our
positive work environment. All of these results are above the financial
services industry norm.

Employees were informed of the Group-wide
survey results, as well as divisional, regional and business area results, as
applicable. Each year's data is analyzed and leveraged in future
culture-building initiatives, as it is our ongoing ambition to have a highly
motivated workforce that models integrity, collaboration and challenge in its daily
work. We strive to be the clear employer of choice in the financial services
industry and maintain overall engagement ratings in the top quartile; both
ambitions have been achieved in 2019.

Our employee networks, which are sponsored by
business leaders, are foundational to strengthening our culture. They help
employees build cross-business relationships and support an open and inclusive
workplace. In 2019, we sponsored 43 employee networks globally, including ones focused
on topics around culture, gender, ethnicity, family, mental health,
Pride / LGBTQ, disability and veterans. Of particular note, our
disability-focused networks in the US, UK, Switzerland and Asia Pacific raise
awareness of visible and invisible disabilities in the workplace, as well as
our management’s active support for hiring, developing and retaining employees
with disabilities across the firm. Our women's networks in locations around the
globe promote personal and professional development through networking,
mentoring and education.

Employee representation

As a responsible employer, we
maintain an open discourse with our formal employee representation groups. We
have two pan-European forums – the UBS Employee Forum (which is our European
Works Council) and the UBS Europe SE Works Council. These groups represent 17 countries
and consider issues that may affect our performance, operations or prospects.
Local and regional work councils, like the Employee Representation Committee in
Switzerland, discuss topics such as business transfers, pensions, workplace
conditions, health and safety, and redundancies. Collectively, these groups
represent approximately 49% of our global workforce.

®Find out more about topics of interest to employees and potential
employees at www.ubs.com/employees or www.ubs.com/careers

38

Managing our global workforce

Our
employees’ skills, experience and commitment are key to delivering on our
business strategy. Our human resources strategy therefore seeks to attract,
develop and retain employees who have the diverse backgrounds and capabilities
to advise our clients, develop new products, manage risk and adapt to evolving
business trends and regulations. We invest in our employees, for example,
through a comprehensive learning platform and career development programs, and
we promote initiatives to build engagement and a cohesive, collaborative
culture.

Further increasing the diversity of our
workforce and ensuring an inclusive workplace is vital to our business success.
In our experience, diverse teams better understand and relate to our equally
diverse clients’ needs. Likewise, diversity of thought, opinion and experience
helps us make better decisions and drives innovation, while an inclusive work
environment attracts high-quality people and makes the firm a better place to
work. Our human resources policies and procedures underscore our commitment to
a diverse and inclusive workplace, with equal opportunities for all employees
and a strong commitment to equal pay that is embedded in all our management
processes.

We offer competitive benefits to all employees, including
insurance, pension, retirement and personal leave, aligned with local market
practices and focused on employee wellbeing. These benefits often go beyond
legal requirements or market practice, and we regularly review them to ensure
they meet our employees’ needs. When it comes to mental wellbeing we enable
employees to build their careers while managing personal commitments. A wide
range of resources are available to help employees navigate work-life issues
and personal challenges. We support flexible working arrangements including
telecommuting, working from home, part-time roles, job sharing and partial
retirement.

Our Employee Assistance Programs offer support
and counseling for challenges such as illness, conflict, bereavement,
psychological health and elderly care. In the UK, for instance, we promoted
World Mental Health Day in October with the launch of Mental Health Champions, made
up of UBS volunteers accredited with specialist training by Mental Health First
Aid England. While these volunteers are not therapists or counselors, they are
trained to listen, reassure and respond in addition to being a point of contact
for any UBS employee who may be experiencing a mental health issue or any type
of emotional distress. We have also added a variety of new learning
opportunities focused on health and wellbeing to our UBS University offering.

At UBS, all new parents can take paid time off
after the birth or adoption of a child. Our parental leave policies meet the
legal standards in all locations and exceed them in most. For example, in the
US, our gender-neutral Child Care Leave policy enables the primary caregiver to
take up to 20 weeks of paid leave during the period immediately following the
birth, adoption or foster care placement of the employee's (or partner’s)
child. In Switzerland, new fathers can take up to 10 days of paid paternity
leave within the first year. In addition, they can either take up to 30
calendar days of unpaid leave or reduce their level of employment to 80% for up
to six months.

In the US, just as we help our clients, our goal
is to also help our employees make informed decisions so they can feel
confident about their financial situation. That is why we have partnered with
UBS Financial Wellness and from January 2020, employees will have access to
educational content, digital tools and licensed Financial Wellness Advisors who
can assist and guide them on their unique financial journey. UBS Financial
Wellness strives to deliver education on a myriad of topics including
budgeting, savings, debt management, insurance protection, big purchases, life
changes, retirement planning, investing basics, estate planning and more.

We offer redeployment and outplacement
initiatives to help employees find new roles, and we have clear policies and processes
for handling redundancies. As an example, when job losses occur in the Swiss
labor market due to restructuring, we offer affected employees access to our
COACH process. This process supports employees in finding a new position
internally or externally.

Our Code of Conduct and Ethics is the basis for
all human resource policies, guidelines and procedures. It includes a
commitment to the health and safety of employees and external staff.

®Refer to the Health and Safety statement in the Appendix 1 for more
information

®Refer to the UBS in society constitutional document in the Appendix
1 for more information

39

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Our 2019 workforce at a glance1

We report
in depth on our global workforce to give stakeholders a clear picture of our
management philosophy and priorities. Our reporting covers key statistics
relevant to full- and part-time employees, as well as relevant data about
external staff. Both groups rely on us to provide a safe, respectful and
collaborative workplace.

As of 31 December 2019, we had 68,601
employees (full-time equivalents / FTEs), 1,713 FTEs more than in 2018. This
included Swiss apprentices on three-year limited contracts who received
benefits equivalent to permanent employees.

A total of 16,408 external staff for core
business services were active at the end of 2019, primarily in technology and
operations roles. This included 2,215 FTEs employed through third parties on
short-term contracts to fill positions on an interim basis. Additionally, a
total of 11,647 external staff for non-core business services were active at
the end of 2019, primarily in premises-related roles.

Also of note:

–Our workforce in 2019 was 39% female and 61%
male; 25% of senior managers who reported to GEB members were female.

–Switzerland was our largest cross-border
importer of employees from other countries; China was our largest cross-border
exporter of employees.

–Employees are asked to record their absences due
to illness or accident in our self-service human resources tool. In 2019, our
global workforce recorded an absentee rate of 1.7% of total scheduled days.

Our workforce by the numbers

To give the most accurate view of our
global workforce, human resources reporting considers a person (working full
time or part time) as one headcount. This accounts for the total UBS employee
number of 69,966 as of 31 December 2019 (versus 68,338 as of 31 December 2018).
These numbers exclude staff from UBS Card Center, Hotel Seepark Thun and
Wolfsberg. The following tables are all reported on this basis, unless
otherwise specified. The percentages in the tables may not total 100 due to
rounding.

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

UBS employees:
external hires

External hires by age group

31.12.19

31.12.18

Number

%

Number

%

Under 30

4,676

46%

5,723

43%

Between 30 and 50

4,985

50%

6,928

52%

Over 50

419

4%

598

5%

Total external hires

10,080

100%

13,249

100%

External hires by gender

31.12.19

31.12.18

Number

%

Number

%

Male

6,073

60%

8,143

61%

Female

4,007

40%

5,106

39%

Total external hires

10,080

100%

13,249

100%

External hires by region

31.12.19

31.12.18

Number

%

Number

%

Americas

2,328

23%

2,959

22%

APAC

3,620

36%

4,207

32%

EMEA (excluding Switzerland)

1,998

20%

3,062

23%

Switzerland

2,134

21%

3,021

23%

Total external hires

10,080

100%

13,249

100%

42

UBS employees:
employee turnover

Turnover by age group

31.12.19

31.12.18

%

%

Under 30

19%

18%

Between 30 and 50

11%

11%

Over 50

10%

9%

Overall turnover

12%

12%

Turnover by gender

31.12.19

31.12.18

%

Male

12%

12%

Female

13%

12%

Overall turnover

12%

12%

Turnover by region

31.12.19

31.12.18

%

%

Americas

12%

11%

APAC

14%

14%

EMEA (excluding Switzerland)

13%

13%

Switzerland

11%

11%

Overall turnover

12%

12%

Note: The turnover rate is calculated
by dividing the number of employees (in FTE) who left by the average number of
employees (in FTE) over the full year period.

UBS employees:
age group

Employees by age group

31.12.19

31.12.18

%

%

Under 30

19%

20%

Between 30 and 50

60%

59%

Over 50

21%

21%

Total

100%

100%

43

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

UBS employees:
employee category (rank group)

Distribution by employee
category and gender

31.12.19

31.12.18

Number

%

Number

%

Officers (Director and
above)

Male

18,425

75%

18,513

75%

Female

6,223

25%

6,079

25%

Total

24,648

100%

24,592

100%

Officers (other officers)

Male

16,447

61%

15,464

61%

Female

10,583

39%

10,060

39%

Total

27,030

100%

25,524

100%

Employee rank

Male

7,958

44%

7,794

43%

Female

10,330

56%

10,428

57%

Total

18,288

100%

18,222

100%

Grand Total

69,966

68,338

Distribution by employee
category and age group

31.12.19

31.12.18

Number

%

Number

%

Officers (Director and
above)

Under 30

143

1%

126

1%

Between 30 and 50

16,402

67%

16,774

68%

Over 50

8,103

33%

7,692

31%

Total

24,648

100%

24,592

100%

Officers (other officers)

Under 30

4,075

15%

3,951

15%

Between 30 and 50

18,801

70%

17,507

69%

Over 50

4,154

15%

4,066

16%

Total

27,030

100%

25,524

100%

Employee rank

Under 30

9,287

51%

9,253

51%

Between 30 and 50

6,369

35%

6,231

34%

Over 50

2,632

14%

2,738

15%

Total

18,288

100%

18,222

100%

Grand Total

69,966

68,338

44

UBS employees:
average training days (gender)

Training by gender

Average training days

31.12.19

31.12.18

Female

2.16

1.83

Male

2.12

1.71

Total average training days

2.14

1.76

UBS employees:
average training days (rank group)

Training by rank group

Average training days

31.12.19

31.12.18

Officers (Director and above)

2.36

1.88

Officers (other officers)

2.02

1.61

Employee rank

2.01

1.80

Total average training days

2.14

1.76

Note: Employee
development activities include on-the-job experience and internal mobility
(changing roles within the firm), exposure to senior leaders, new teams and
experiences (e.g., through networking and mentoring) and education (both
voluntary and required). Experience and exposure generally account for
approximately 90% of an employee’s development activities. It is also important
to note that in 2018 and 2019, our in-house university revamped its offering to
better prepare for future global trends and enable employees to choose the
depth of learning to meet their voluntary learning goals based on their needs.
We also increased the efficiency of mandatory trainings in both 2018 and 2019.

UBS employees:
parental leave taken

Parental leave taken (by
gender)

2019

2018

Male

2,557

2,196

Female

3,439

2,951

Total number of employees

5,996

5,147

All employees are entitled to take parental leave as indicated
in the respective local human resources policies. This table shows number of
employees who took parental leave as recorded in the UBS HRi system; data
aggregation is subject to limitations such as the disparate definitions and permutations
of parental leave across the firm and the various leave and absence tools
used in the 50+ countries in which we operate.

45

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Society

As expressed in the 17 United Nations
Sustainable Development Goals (the SDGs), the world faces enormous societal and
environmental challenges. We recognize that it is important to understand these
challenges, as well as the opportunities arising from them, to consider their
relevance to UBS and to identify potential actions our firm may need to take.

As the world’s largest truly global wealth
manager, we have a responsibility to take a leading role in shaping a positive
future, for everyone, including the generations to come.

Code of Conduct and Ethics

In our Code of Conduct and Ethics (the
Code), the Board of Directors and the Group Executive Board set out the
principles and practices that define our ethical standards and the way we do
business. These principles apply to all aspects of our business.

All employees must confirm annually that they
have read and will adhere to the Code and other key policies, supporting a
culture where ethical and responsible behavior is part of our everyday
operations.

In the Code, we make a commitment to integrating
financial and societal performance for the mutual benefit of our clients and
our firm – and that we are constantly looking for better ways to do business in
an environmentally sound and socially responsible manner.

®Refer to the Code of Conduct and Ethics of UBS, available at www.ubs.com/code, for more information

Engaging with society

We engage with representatives of wider
society on a regular basis and on a wide range of topics. This engagement
yields important information about society’s expectations and concerns and makes
a critical contribution to our understanding and management of issues with
potential (positive and negative) relevance to our firm – and to society. By
actively fostering such interactions, we are in a position to address
expectations and concerns in an informed and effective manner.

UBS in society

UBSin society is a dedicated organization within the firm, focused on
maximizing our positive effect and minimizing any negative effects UBS has on
society and the environment. It covers all of the activities and capabilities
related to sustainable finance (including sustainable investing), philanthropy,
environmental, climate and human rights policies governing client and supplier
relationships, our environmental footprint, human resources, and community investment. It is
through this cross-divisional organization that we leverage our expertise
across all of these areas to drive sustainable performance. UBS in society is committed to making UBS a force
for driving positive change in society and the environment.

Theactivities driven by UBS in society are overseen, at the highest level of our firm, by our Board of Directors’ Corporate Culture and Responsibility Committee (the CCRC).The Group CEO
supervises the execution of the UBS
in society strategy and
annual objectives and informs the Group Executive Board and CCRC about UBS in society updates as appropriate. Reporting to the GroupCEO, the Head UBS in society is UBS’s senior-level representative for sustainabilityissues and, on behalf of the Group CEO, proposes the UBS in society strategy and annual
objectives to the CCRC for approval.

®Refer to “Board of Directors” in the “Corporate governance” section of this report for more information about the CCRC

Driving
change in finance

As a major financial institution, we
are conscious that the activities and decisions of our clients can have a
substantial impact on society. It is for that reason that we strive to
incorporate environmental, social and governance (ESG) impacts into the
products and services we provide to clients and partner with them to help
mobilize capital toward the achievement of the SDGs and the orderly transition
to a low-carbon economy.

We know that ESG topics are increasingly
important to our clients. That is why we have dedicated a separate section in
this report to highlight our commitment to serving the growing sustainable
finance needs and expectations of our clients, and to the key activities
associated with our commitment.

®Referto “Our focus on ESG” in this section for more information

Driving
change in philanthropy

We believe our clients can make a meaningful,
and measurable, difference for their chosen causes with advice from our
philanthropy experts and the more than 200 global programs that have been carefully
selected through our UBS Optimus Foundation. We increase social impact by
combining our expertise with capital and networks. Through our Philanthropy Services
platform, we offer clients unique access to social and financial innovation and
philanthropic advice, as well as tailored program design, co-funding and
co-development opportunities.

®Refer to www.ubs.com/optimus for more information

46

Driving change in communities

We recognize that our firm’s long-term success depends on the health
and prosperity of the communities of which we are a part. We seek to redress
disadvantages through long-term investments in education and entrepreneurship.
We provide strategic financial commitments and targeted employee volunteering
to drive impact across a number of the SDGs.

®Refer to the“Driving
change in communities” section in the Sustainability
Report 2019, available from 5 March 2020 under “Annual reporting” at www.ubs.com/investors for more information

Driving change in business

We view the proper, firm-wide
management of our firm’s own environmental footprint and our supply chain as
important proof of how we do business in a sustainable manner for the benefit
of society.

This is equally true of our comprehensive environmental
and social risk management and framework that governs client and vendor
relationships and is applied firm-wide to all activities. We have set environmental
and social risk standards pertaining to environmental and human rights topics
in product development, investments, financing and supply chain management. We
have identified certain controversial activities that we will not engage in at
all, or only under stringent criteria. As part of this process, we engage with
clients and vendors to better understand their processes and policies, and to
explore how any environmental and social risks may be mitigated.

We have set ambitious targets relating to our
use of energy, water and paper, as well as to our travel and the amount of
waste we produce, and we aim to increase the awareness of environmental and
social matters among our employees and foster a long-term sustainable mindset in
all our activities. In 2019, the year in which we celebrated 20 years since
becoming the first bank to gain global environmental management system
certification (ISO 14001), we ran major campaigns on key environmental themes.

Our campaigns demonstrate our strong
commitment to reducing UBS’s environmental footprint and further raising our
employees’ awareness of key environmental challenges. The “Go drastic. Cut the plastic.”
global campaign, which was launched in July 2019, aims at encouraging behavioral
change to help tackle, reduce and phase out single-use plastic items across our
firm. In October, we held our first Zero Waste Day at 22 sites across the
globe, which featured numerous sustainability-themed activities. Additionally,
at five major offices across the globe, we hosted events featuring subject
matter experts talking about their life’s work and passion, including speakers
from innovative companies.

®Refer to the Sustainability Report 2019, available from 5 March 2020
under “Annual reporting” at www.ubs.com/investors,
for full descriptions of our environmental management, our responsible supply
chain management and our environmental and social risk management and framework

Reporting to our stakeholders on our
sustainability strategy and activities

Information about all our
sustainability efforts and commitments is provided in the UBS Sustainability
Report,1 available
under “Annual reporting” at www.ubs.com/investors. The content of the Sustainability Report has been
prepared in accordance with the Global Reporting Initiative (GRI) Standards
(“comprehensive” option) and with the German rules implementing the EU
directive on disclosure of non-financial and diversity information
(2014/95/EU). Our reporting on sustainability has been reviewed on a limited
assurance basis by Ernst & Young Ltd against the GRI Standards. Our
Sustainability Report 2019 also includes our full climate disclosure, which we
have been aligning with the recommendations provided by the Financial Stability
Board’s Task Force on Climate-related Financial Disclosures since their
introduction in 2017.

1 The UBS Sustainability
Report is available from 5 March 2020, and is not deemed incorporated by
reference into the SEC Form 20-F filing.

47

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Aims and progress

We work with a long-term focus on
providing appropriate returns to all of our stakeholders in a responsible
manner. To underline our commitment, we provide transparent goals and report on
progress made against them wherever possible. In 2019, we made good progress in
delivering against the Group’s aims.

We
aim to be / Our key goals1

Our
progress

A leader in sustainable
finance across all client segments

2017–2020

–Double the penetration of core SI assets from
5.6% (USD182 billion) of total invested assets2

1 Refer to
the UBS in society constitutional document (in theSustainability Report 2019)for more information
about all aims. Goals are to be achieved by the end of the target year. 2 Core SI are SI products that involve a strict and diligent asset
selection process through either exclusions (of companies / sectors from the
portfolio where the companies are not aligned to an investor’s values) or
positive selections (such as best-in-class, thematic or ESG integration and
impact investing). Refer to the “Core sustainable investments” table in “Our
focus on ESG” in this section. 3 The
increase in core SI assets was mainly driven by the ESG integration strategy of
Asset Management. Refer to the “Core sustainable investments” table in “Our focus
on ESG” in this section. 4 Strategies
where the investment has the intention of generating measurable environmental
and social impact alongside a financial return. 5 Refer to the “Driving change in communities” section in the Sustainability
Report 2019.

48

Stakeholder relations (additional information)

Governments and regulators

Financial market stability is largely
dependent on the overall economic, regulatory and political environment and the
conduct of the firms within the sector. We actively participate in political
discussions to share our expertise on proposed regulatory and supervisory
changes. The regime set out by the post-2008 regulatory reform agenda is now
largely completed with focus shifting to final national implementation of key
prudential rules such as the Basel III standards.

With regard to
corporate responsibility and sustainability issues, we actively participated in
governmental discussions concerning the implementation of commitments made at
the Paris Climate Change Conference and in the United Nations Sustainable
Development Goals. In addition, we contribute to the Task Force on
Climate-related Financial Disclosures (TCFD). On a regional basis, we
contribute to various fora to engage with policymakers on the European
Commission’s Sustainable Finance Action Plan. In our home country Switzerland,
we continue to actively contribute to pertinent sustainability discussions with
various government bodies. We also contribute our experience and knowledge to
supervisors in their efforts to further thinking on new topics, such as the
appropriate regulatory environment for digital finance and the financial risks
of climate change.

®Refer to UBS’s quarterly reports and annual reports available at www.ubs.com/investors
for more information on regulatory topics

Politicians and political parties

We maintain a regular dialogue with
politicians globally and strive to establish long-term relationships with
political representatives.

We comply with legal requirements on
disclosing political donations, as applicable in the relevant jurisdictions.
Outside of Switzerland, we do not provide financial support to political
parties. In the US, eligible employees may make financial contributions through
a federal Political Action Committee (PAC), the UBS Americas Fund for Better
Government. The PAC makes contributions to federal candidates. These employee
contributions do not constitute political donations by UBS.

Support of the Swiss militia system

Swiss citizens actively and voluntarily
engage in political institutions at all three levels of the Swiss state
(federal, cantonal and local) as public officials (e.g., members of parliament,
members of commissions and executive mandates), while they continue to pursue
other professional activities. This arrangement – citizens taking on public
tasks and mandates on a part-time basis – is referred to as the militia system.

In this system, members of parliament in
Switzerland are (usually) not professional politicians and political parties do
not receive state funding. It is for this reason that we view the support of
the militia system as a crucial component of our societal responsibility in our
home market. In recognition of the vital function of Switzerland’s political
parties, we provided a total of CHF 1 million to political parties in 2019 as a
contribution to their operational costs. Financial contributions are calculated
based on the number of parliamentary seats the respective party holds at the
federal and cantonal level. Swiss parties are eligible to apply for a financial
contribution if they commit to free competition, the market economy and to the Swiss financial center. They should
also have a national focus and
either form a parliamentary group in the federal parliament or be represented
in at least one cantonal government. We view our contribution to political
parties in Switzerland as a long-term commitment, which is, however, subject to
regular reviews.

Annual political forum for employees who
hold elected public office in Switzerland

We expressly support the political
involvement of our employees. About 250 employees currently hold political
office at the federal, cantonal and local level. If necessary, employees may
spend a certain amount of their working time on their public duties. We
organize an annual political forum at which senior management and political
office holders discuss topics of relevance to UBS in Switzerland.

®Refer to www.ubs.com/gov for more information on governmental
topics pertaining to Switzerland

Peers

We actively engage in regular
discussions on corporate responsibility and sustainability issues with
specialists in peer banks, and more widely through trade bodies and
associations. Sharing experiences and assessments of corporate responsibility
and sustainability issues helps us to compare and improve our strategy,
approach and tools.

We are a founding member of the Wolfsberg Group,
an association of global banks that aims to develop financial services industry
standards regarding anti-money laundering, Know Your Client and
counter-terrorist financing policies. Meeting regularly, the Wolfsberg Group
also works closely with the Financial Action Task Force.

With regards to climate risk, UBS is cooperating
on two fronts. Firstly, we are part of the United Nations Environment Programme
Finance Initiative (UNEP FI) TCFD working group for banks to refine methodologies,
scenarios and data sources to assess climate-related financial risk in loan
portfolios and secondly, we are pilot-testing the Paris Agreement Capital
Transition Assessment (PACTA) to shape the development of methodologies and
study the alignment of corporate lending portfolios with the Paris Agreement
benchmarks.

In 2011, we were a driving force behind the
establishment of the Thun Group of Banks. The group has published two papers
that propose a framework to help identify key challenges and best practice
examples for the banking sector’s implementation of the UN Guiding Principles
on Business and Human Rights. The Thun Group maintains regular discussions,
both in calls and in annual meetings at the UBS Conference Center in Thun,
Switzerland.

49

Our strategy,
business model and environment (section from the UBS 2019 Annual Report)
How we create value for our stakeholders

Communities

At UBS, we recognize
that our long-term success depends on the health and prosperity of the
communities that we are a part of. Our approach is to build sustainable and
successful partnerships with non-profit organizations and social enterprises to
help our contributions have a lasting impact. Our Community Affairs programs
seek to overcome disadvantage through long-term investment in education and
entrepreneurship in the communities within which we operate.

Through local execution and partnerships,
which operate under a global framework and with coordination across regions, we
endeavor to deliver business and community impact by identifying innovative and
high-quality programs that are aligned to the business. We provide focused
financial and human support, including skills-based employee volunteering programs and client participation
where appropriate. We are an active member of the London
Benchmarking Group, an internationally recognized standard for measuring
corporate community investment.

®Refer to the “Driving change in communities“
section for further information and data of relevance
to the communities we do business in

Vendors

In 2019, we spent USD 9.01 billion on
a broad range of products and services. A large proportion
of this expenditure comprises real estate, outsourcing, IT as well as
consultancy and legal fees. Our sourcing and procurement services are provided
by an external company, Chain IQ, which applies our responsible supply chain
management (RSCM) framework and processes. The experienced procurement and
sourcing specialists at Chain IQ perform vendor due diligence and establish
remediation measures, supported by a centralized team of experts within UBS.

We aim to ensure that our social and
environmental values are being followed throughout the supply chain. A
firm-wide RSCM guideline provides systematic assistance on identifying,
assessing and monitoring vendor practices in the areas of human and labor
rights, environmental protection and anti-corruption. A central component of
this guideline is the UBS Responsible Supply Chain Standard, to which our
direct vendors are normally bound by contract. We expect our vendors to apply
these same standards to relationships with their vendors.

®Refer to “Responsible supply chain management“ in the “Driving
change in business” section for more information

Non-governmental organizations

We regularly interact with
non-governmental organizations (NGOs) and appreciate their input and insight,
as it helps us consider our approach to, and understanding of, societal issues
and concerns.

NGOs have long established themselves as
critical watchdogs of companies, both scrutinizing and challenging how we
address a broad range of environmental, social and human rights concerns. In
2019, discussions with NGOs were particularly focused on climate change
(notably on fossil fuels). Other topics discussed included sustainable finance
and human rights.

Media

Our media teams maintain direct and
long-term relations with media representatives across all our business regions
and provide them with timely information on a wide range of global, regional
and local topics. Senior management (at the Board of Directors and Group
Executive Board level) also regularly provide accounts to journalists,
predominantly through interviews. In addition to interviews at our corporate
events (i.e., via quarterly and annual reporting and at the Annual General
Meeting), senior management conducted many other interviews in 2019.

We also communicated with media representatives
– through interviews or background talks – on a broad range of corporate
responsibility and sustainability topics such as climate change, human rights
and environmental and social risks in general.

®Refer to www.ubs.com/media
for further information on UBS media relations

50

Our governance and principles

Our firm’s societal and corporate
culture activities are overseen at the highest level of our firm and are
founded in our Principles and Behaviors.

Sustainability governance

The Board of Directors (the BoD) of UBS
Group AG decides on the strategy of the Group upon recommendation by the Group
Chief Executive Officer (the Group CEO) and is responsible for the overall
direction, supervision and control of the Group and its management, as well as
for supervising compliance with applicable laws, rules and regulations. The BoD
exercises oversight over UBS Group AG and its subsidiaries and is responsible
for establishing a clear Group governance framework to provide effective
steering and supervision of the Group, taking into account the material risks to
which UBS Group AG and its subsidiaries are exposed. The BoD has ultimate
responsibility for the success of the Group and for delivering sustainable
shareholder value within a framework of prudent and effective controls.

The BoD of UBS Group AG is responsible for
setting our firm’s values and standards to ensure that the Group’s obligations to our stakeholders are met.
Both the Chairman of the BoD and the Group CEO play a key role in safeguarding
our reputation and ensuring we communicate effectively with all our
stakeholders.

All BoD committees have responsibilities and
authorities of direct relevance to our goal of creating sustainable value. The
Governance and Nominating Committee, for instance, supports the BoD in
fulfilling its duty to establish best practices in corporate governance across
the UBS Group. The Compensation Committee supports the BoD in its duties to set
guidelines on compensation and benefits. The Risk Committee oversees and
supports the BoD in fulfilling its duty to supervise and set an appropriate
risk management and control framework (in the areas of risk management and
control, treasury and capital management, as well as balance sheet management).

The Corporate Culture and Responsibility
Committee (CCRC) is the body primarily responsible for corporate culture, responsibility and sustainability. The
oversight role of the CCRC has been embedded in the Organization Regulations of
UBS Group AG.

In view of the many environmental and social
challenges globally, as encompassed by the Sustainable Development Goals (SDGs),
these topics will continue to increase in relevance for banks. These
developments therefore require regular and critical assessment of our policies
and practices, based on an accurate monitoring and analysis of societal topics
of potential relevance to UBS. This process is the
responsibility of a committee at Group Executive Board-level, the Global
Environmental and Social Risk (ESR) Committee, which sets the overall risk
appetite for the firm and resolves transactional and policy matters relating to
environmental and social risks and their associated reputation risks. It is
chaired by the Group Chief Risk Officer, who is responsible for the development
and implementation of principles and appropriate independent control frameworks
for environmental and social risks within UBS.

The GEB oversees our efforts to combat money
laundering, corruption and terrorist financing. These efforts are led by a
dedicated financial crime team of anti-money laundering compliance experts. The
GEB also oversees our approach to diversity and inclusion. Our global head of
diversity and inclusion drives a group-wide strategy complemented by divisional
and regional initiatives.

®Refer to the “Sustainability governance” graph below

®Refer to the Appendix 1 for the CCRC charter and the ESR policy
framework

Key policies and guidelines

Code of Conduct and Ethics

The Code of Conduct and Ethics of UBS (the
Code) sets out the principles and practices that UBS expects all of its employees
and directors to follow both in form and intention. The principles and
standards set out in the Code should characterize all of UBS’s business
activities and all its dealings with the firm’s stakeholders including clients,
colleagues, shareholders, regulators and business partners. It is the basis for
all UBS policies, guidelines and statements relating to each of the firm’s
employees’ personal commitment to appropriate and responsible corporate
behavior.

®Refer to www.ubs.com/code and the Appendix1 of this document for the full text of the Code

UBS in society constitutional document

It is our goal to be the financial
provider of choice for clients wishing to mobilize capital towards the SDGs and
the orderly transition to a low-carbon economy (the Paris Agreement). The UBS in society constitutional document defines the principles and responsibilities
for promoting this commitment systematically across all relevant businesses and
for implementing the ethical standards defined in the Code that govern UBS’s interaction with society and the environment.

®Refer to the Appendix 1 for the full text of the UBS in society
constitutional document

51

Our governance and
principles

Policies to combat
financial crime

We have developed policies intended to
prevent, detect and report money laundering, corruption and terrorist
financing. These policies seek to protect the firm and our reputation from
those who may be intending to use UBS to legitimize illicit assets.

At UBS, we apply a risk-based approach and have
a framework in place to identify and manage potential money laundering risks
associated with customers and transactions. With our systematic assessment of
money laundering risks we strive to arrive at the appropriate level of initial
and ongoing due diligence and monitoring of transactions throughout the course
of a relationship. For certain higher risk clients, face-to-face due diligence
requirements are mandatory. Our anti-money laundering (AML) policy sets out the
processes and risk criteria pertaining to politically exposed persons (PEPs).
Global PEP clients are reviewed and reapproved on an annual basis by the
responsible member of each divisional Executive Committee.

Our Code focuses on preventing the misuse of the financial system, including
in relation to bribery. The specific anti-corruption standards of conduct that
apply to all employees are also set out in the Group Policy Against Corruption.
The policy sets out our zero-tolerance stance toward corruption and prohibits
all forms of bribery by the firm and our employees, including facilitation
payments.

Anti-corruption policies and procedures that
aim to prevent bribery occurring throughout our operations apply to all
business divisions. These policies are derived from the standards set out in
the Group Policy Against Corruption and the Group Policy on Gifts and Business
Entertainment.

®Refer to the “Driving change in business” section for more
information about how we are combating financial crime

Grievances and whistleblowing protection,
policies and procedures

We strive to maintaining high legal,
regulatory and ethical standards. We have longstanding procedures in every
region to help us resolve employee grievances, and employees are strongly
encouraged to speak with their line manager or HR about any concerns.

Our global whistleblowing policy and
procedures offer multiple channels (including a whistleblowing and sexual
misconduct hotline) for staff to raise concerns about any suspected breaches of
laws, regulations, rules or other legal requirements, sexual misconduct or harassment,
or any infringement of our Code, policies or professional standards. They may
raise concerns openly or anonymously.

As set out in the Code, employees are
required to immediately report any potential violations of the Code to their
line manager or local compliance officer. Employees may also report them
confidentially to their Legal or Compliance teams, or using our whistleblowing
procedures. UBS prohibits retaliation against employees for reporting a concern
that they reasonably believe constitute a breach or violation of this kind.

®Refer to “Risk management and control” in the “Risk, treasury and
capital management“ section of the UBS Annual Report 2019 for more information

Human Resources policies

Human Resources has global and
country-specific policies designed to ensure effective management practices, a
strong culture and a safe and respectful working environment. An overarching
global employment policy sets the minimum hiring and employment standards for
all UBS locations. It provides fair, consistent and transparent treatment for
our employees while taking into account local legal requirements, market best
practices and shareholders’ interests. This policy is supplemented by Employee
Handbooks providing local information and clarification. Along with the
individual employment contract / offer letter, Employee Handbooks are the
primary source of information for employees on the terms and conditions of
employment and human resources programs, policies and procedures applicable to
them.

UBS has in place appropriate policies
on political donations, which set out the principles (including by referencing
UBS’s anti-corruption standards) and approval processes for corporate political
donations made on behalf of UBS or its entities and their respective approval
processes.

UBS’s community interaction (i.e., charitable
contributions and employee volunteering) is guided by a global policy, which governs
the responsibilities for Community Affairs activities within UBS and represents
the official guidelines for all employees to follow. It defines the governance,
principles, responsibilities, focus themes, criteria (including on anti-corruption
and anti-bribery), financial planning framework as well as due diligence
requirements applicable to all Community Affairs activities and all financial
contributions to non-profit organizations and social enterprises made by UBS.

Our sponsorship activities are guided by a
group-wide governance document which describes how the UBS policy on brand
& marketing should be implemented in sponsorship and events. The document
clarifies roles and responsibilities (including as regards anti-corruption and
anti-bribery), describes ways of working and is intended to ensure effective
and efficient cooperation among the various stakeholders.

52

Sustainability governance

53

Our governance and
principles

Our climate
strategy – taking action towards a low-carbon future

Climate action – a snapshot

Nearly five years
have passed since the adoption of the Paris Agreement on Climate Change (the
Paris Agreement). Collective progress towards achieving the goals of the
Paris Agreement will be assessed in a global stocktake in 2023, acknowledging
the
2 °C benchmark and the more recent 1.5 °C limit in global warming urged by
the Intergovernmental Panel on Climate Change (IPCC) in its 2018 special
report. Achieving the Paris Agreement goals demands unprecedented levels of
investment. In terms of the current state of climate action, there is a
recognized climate finance gap as well as a Sustainable Development Goals
(SDGs) investment gap – to meet the low-carbon transition targets. At the
same time, we see a clear investor appetite for directing capital toward a
low-carbon future. To support in scaling up collective action, UBS assists
private and institutional clients in their desire to invest in accordance
with their social and environmental objectives, thus helping to close the
gap.

We aspire to drive positive change in
society and the environment for future generations. Our climate strategy
underlines our commitment to the SDGs on climate action and on affordable and
clean energy as well as the Paris Agreement. These key UBS commitments are
embedded in the United Nations (UN)-backed Principles for Responsible Banking
(PRB). This global framework specifies the role of banks in supporting a
sustainable future and scaling up their contribution to the achievement of both
the SDGs and the Paris Agreement. UBS became a founding signatory of the PRB in
September 2019.

We regularly report on the implementation of
our climate strategy and follow the recommendations provided by the Financial
Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
The recommendations call on companies to disclose the impacts of climate change
on their businesses. This will allow investors and financial institutions to
make better investment decisions with a common set of data to assess the
climate-related risks and opportunities of specific companies. We are committed
to aligning our climate disclosure within the five-year pathway outlined by the
TCFD (until end of 2022) and to collaborating within the industry to close
gaps.

We publicly support international,
collaborative action against climate change. Our Chairman is a signatory to the
European Financial Services Round Table’s statement in support of a strong,
ambitious response to climate change. Our Group CEO is a member of the Alliance
of CEO Climate Leaders, an informal network of CEOs convened by the World
Economic Forum and committed to climate action. Our Head Sustainable Equity
Team within UBS Asset Management (AM) is a member of the TCFD.

Our climate-related achievements have been
recognized by external experts. For the fifth year running, UBS has been named
the best performer in the Diversified Financial Services and Capital Markets
Industry of the Dow Jones Sustainability Indices (DJSI), the most widely
recognized corporate sustainability rating. CDP, which runs a global disclosure
system that enables companies, cities, states and regions to measure and manage
their environmental impacts, has awarded UBS with Leadership status and a A-
rating on climate change. In 2019, ShareAction, an international organization
focused on advancing responsible investment, awarded UBS as the best performing
asset manager in climate proxy voting in its report, "Voting matters – Are
asset managers using their proxy votes for climate action?"

Climate-related
highlights

–Our climate strategy underlines our commitment to the SDGs on
climate action and on affordable and clean energy and supports an orderly
transition to a low-carbon economy, as defined by the Paris Agreement.

–Our exposure to carbon-related assets on our banking balance sheet
is low, at 0.8% or USD 1.9 billion as of
31 December 2019, decreasing further from 1.6% at the end of 2018 and 2.8% at
the end of 2017.

As embedded in the Organization
Regulations of UBS Group AG, the Board of Directors’ (BoD) Corporate Culture
and Responsibility Committee (CCRC) oversees our climate strategy. Within the
parameters set by the CCRC, the UBS in society
Steering Committee ensures firm-wide execution of the climate strategy while
our firm’s climate-related risk
appetite is set by the Global Environmental & Social Risk (ESR) Committee.
In joint meetings, the CCRC and the BoD’s Risk Committee regularly and
critically review the assessments and steps taken by these management bodies
towards executing our climate strategy. The CCRC approves UBS’s annual
climate-related objectives and oversees the progressive alignment of our
climate disclosure with the TCFD recommendations. These annual plans and
objectives are managed as part of our ISO 14001-certified environmental
management system (EMS) with defined management accountabilities across the
firm.The EMS helps us to systematically reduce environmental risks,
seize market opportunities and continuously improve our environmental and
climate performance and resource efficiency.

®Refer to the ”Sustainability
governance” graph in this
section

Climate strategy

As one of the world’s largest managers of private and
institutional wealth, we play an active role in shaping a sustainable future.
As with the SDGs, we aim to be a leading financial provider in enabling
investors to mobilize private and institutional capital to climate change
mitigation and adaptation while supporting the transition to a low-carbon
economy. At UBS we see a clear investor appetite for directing capital in
climate solutions. We address this by continuously developing our offering in
sustainable finance and actively engaging with clients. Our climate strategy
supports our clients and our firm preparing for success in an increasingly
carbon-constrained world.

We support this goal through our innovative
financial product offering and advisory, as well as through embedding climate
risk in our firm-wide risk management framework and in our own operations. Our
climate strategy focuses on four pillars:

–Protecting our own assets: We seek to protect
our assets by limiting our risk appetite for carbon-related assets and by
estimating our firm’s vulnerability to climate-related risks using
scenario-based stress testing approaches and other forward-looking portfolio
analyses. We have reduced carbon-related assets on our balance sheet to 0.8% or
USD 1.9 billion as of 31 December 2019, down from 1.6% at the end of 2018
and 2.8% at the end of 2017.

–Protecting our clients’ assets: We support our
clients’ efforts to assess, manage and protect them from climate-related risks
by offering innovative products and services in investment, financing and
research. We actively engage on climate topics with
companies that we invest in; AM has implemented an engagement program with 50
companies from oil and gas and utilities sectors and we voted on 44 climate-related
shareholder resolutions during 2019.

–Mobilizing private and institutional capital: We
mobilize private and institutional capital towards investments facilitating
climate change mitigation and adaptation and in supporting
the transition to a low-carbon economy as corporate advisor, and/or with our
lending capacity. In 2019, our climate-related sustainable investments rose to
USD 108 billion from USD 87.5 billion at the end of 2018, and the deal value in equity and debt capital market services, and in
financial advisory services, related to climate change mitigation and
adaptation, rose to USD 87.2 billion, from USD 56.5 billion in 2018.

–Reducing our direct climate impact: We continue
to reduce our greenhouse gas (GHG) emissions and increase the firm’s share in
renewable energy. We have committed to using 100% renewable electricity by
mid-2020. This will reduce our firm’s GHG footprint by 75% compared with 2004
levels. At the end of 2019, we had reduced our GHG emissions by 71% compared to
baseline year 2004.

®Refer to “ “Our focus on ESG” in the “How we create value for our
stakeholders” section for more information about our sustainable investments

®Refer to “In-house environmental management“ in the “Driving change
in business” section for more information

55

Our governance and
principles

Climate risk management

The physical and transition risks of
climate change contribute to a structural change affecting banks and the
financial sector at large. In order to protect our own and our clients’ assets
from climate-related risks, we continue to drive the integration of
climate-related risk into our standard risk management framework. This
framework involves procedures and tools for identifying, assessing and
monitoring environmental and social risks in our standard risk, compliance and
operations processes. These include client onboarding, transaction due
diligence, product development and investment decision processes, own
operations, supply chain management and portfolio reviews. These processes are
geared toward identifying clients, transactions or suppliers potentially in
breach of our standards or otherwise subject to significant environmental and
human rights controversies, including climate change.

In 2019, we embedded climate risk into our
risk taxonomy and operational risk appetite statement, further reduced our
exposure to carbon-related assets and, more broadly, to climate-sensitive
sectors. We also refined our ability to estimate the firm’s vulnerability to
climate-related risks using forward-looking scenario-based approaches, and revised
our standards in the energy and utilities sectors.

®Refer to the ”Climate-related
standards in the energy and utilities sectors” table below

®Refer to ”Scenario
analysis” further below

1Greenfield
means a new mine / well or an expansion of an existing mine / well which
results in a material increase in existing production capacity.

56

Scenario analysis

We have been using scenario-based
approaches since 2014 to assess our exposure to physical and transition risks
associated with climate change. We have performed both top-down balance sheet
stress testing (across the firm), as well as targeted, bottom-up analysis of
specific sector exposures in short, mid-, and long-term horizons. The table
below summarizes the UBS scenario assessments performed to date.

Our initial (2014) top-down approach
consisted of a scenario-based stress test to assess UBS’s balance sheet
vulnerability across the firm. Leveraging our existing firm-wide top-down
stress testing methodology, we developed a climate change scenario (which
assumes that severe weather events result in governments around the world
agreeing to implement carbon pricing mechanisms to assess the impact on
financial assets, operational income and physical assets). The scenario
anticipated that these mechanisms will prompt a shift away from coal and other
fossil fuels to cleaner alternatives and adversely impact markets and gross
domestic product. Our subsequent (2015) bottom-up analyses of oil and gas
utilities as well as electric utilities loan portfolios consisted of a
forward-looking analysis to assess impacts of a long-term low fossil fuel price
scenario resulting from policies promoting greater use of renewables, enhancing
efficiency standards and limiting emissions. We calculated the impact this
scenario would have on company probability of default and aggregated
company-level results at the portfolio level to assess changes to expected
loss. We also assessed the vulnerability of loan portfolios secured by real
estate in Switzerland and the US to physical risk by mapping the location of
collateral in over 6,000 postal code areas against Swiss Re’s CatNet tool,
which aggregates a large dataset of observed natural hazards such as wildfire,
river and pluvial flooding and tropical cyclones.

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Our governance and
principles

From both top-down
and bottom-up approaches, our internal stress tests suggested no immediate
threat to UBS’s balance sheet. However, we identified methodological challenges
ranging from the suitability of climate scenarios for banking risk modelling to
data availability. To address these challenges,
16 banks, including UBS, the UN Environment Programme Finance Initiative (UNEP
FI), the Integrated Assessment Modelling Consortium (IAMC), and risk
consultancies Oliver Wyman and Acclimatise began a collaboration of several
years in 2018. The objective is to develop analytical tools that help banks
define and disclose climate-related risks and opportunities as envisioned by
the TCFD. This includes developing and further refining scenario-based
stress-testing methodologies. Now in its second phase, the UNEP FI TCFD working
group for banks has grown to 35 banks and has expanded the development of these
analytical tools to include a range of possible scenarios, further advancement
on scenario-based stress testing methodologies, and standardization between
institutions on what defines climate-sensitive activities. These advancements
aim for banks to more robustly identify and disclose exposure to
climate-related risks and opportunities.

In addition to the UNEP FI TCFD working
group, UBS is one of the pilot banks testing the Paris Agreement Capital
Transition Assessment (PACTA). In the context of the PACTA pilot, we studied
the alignment of select climate-sensitive sectors in our corporate credit
portfolio with Paris Agreement benchmarks. The methodology provides an
assessment of a bank’s
credit-financed activities in relation to the global shift to a low-carbon
economy. For example, the assessment showed that the fuel mix in UBS’ s power
utilities credit portfolio, according to the PACTA methodology, is
significantly less carbon intensive than the global corporate economy, as of 2019
(see “PACTA methodology for power generation“ further below). However, the
limitations of the outputs from this assessment are very similar to the other
pilots and we will continue to work on improving methodology, data availability
and scenario applicability.

Both pilots promote industry learning and
provide guidance for disclosing climate-related risks and opportunities in line
with TCFD recommendations. Overall, the results of the 2019 climate risk pilots
have confirmed findings from our previous pilot stress tests on climate, which
started in 2014: we have so far not identified significant climate-related
financial risk on our balance sheet. We explain this by UBS’s relatively small
lending book in climate-sensitive-sectors (see “UBS corporate lending to
climate-sensitive sectors 2019“ further below) and availability of insurance
where we have relevant exposures to such sectors (e.g., Swiss mortgage lending
book).

Protecting our clients’ assets

We help our clients assess, manage
and protect their assets from climate-related risks by offering innovative
products and services in investment, financing and research. AM has developed a
suite of products allowing clients to identify the carbon intensity of their
investments and/or to align them with the Paris Agreement: In 2017, AM together with the New Employment
Savings Trust launched a strategy called Climate Aware with an aim to do more than manage
investments based on carbon foot-printing. In 2018, AM followed its successful
UK Climate Aware rules-based fund with an Irish-based fund
that is available for international investors outside of the UK. The portfolio
is oriented towards companies that are better prepared for a low-carbon future
while reducing exposure to, rather than excluding, companies with higher carbon
risk, in order to pursue strategic engagement with these companies. The
strategy involves not only a reduction of the CO2 footprint of the
portfolio but also an innovative approach to aligning the portfolio with the 2 °C
carbon reduction scenario.

Finally, AM empowers equity portfolio
managers to examine the carbon footprint of their portfolios and compare the
relative carbon footprints of their company holdings to that of the benchmark.

Engagement

On behalf of
clients, AM engages with companies it invests in to discuss approaches to
mitigating climate-related risk. AM also actively votes on shareholder
resolutions to improve transparency and disclosure around climate-related
reporting. Specifically in the context of its Climate Aware fund, AM has implemented an engagement
program with 50 oil and gas companies as well as utilities companies
underweighted in the fund. Communication with these companies aims at improving
their disclosure and performance alignment with the TCFD recommendations.
Engagement also makes it possible to share the results of the quantitative and
qualitative assessments included in the fund methodology with investee
companies. This allows for the verification of company performance with
additional information collected before and after meetings. It also means AM
can collect feedback, explicitly communicate
objectives for change in corporate practices and further enhance the model used
to inform the under- / overweights in the strategy.

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AM
is also involved in Climate Action 100+, a collaborative engagement initiative
launched in December 2017. Its aim is to engage with high-level greenhouse gas emitters,
and other companies across the global economy, that have significant
opportunities to drive the clean energy transition and help achieve the goals
of the Paris Agreement. It has the support of 320 investors, representing more
than USD 33 trillion of assets under management (at end of 2019). AM is
directly involved in 30 coalitions of investors (at the end of 2019) within
Climate Action 100+ and leads seven of the company dialogues across regions.
Whether AM is a lead or participating investor, it is an active member of these
coalitions, providing feedback on the climate change performance of companies,
the discussion agenda, engagement goals and the progress of these dialogues.

Opportunities

We mobilize private and institutional
capital for investments that facilitate climate change mitigation and
adaptation. UBS supports the orderly transition to a low-carbon economy as
corporate advisor, and/or with its lending capacity.

As we outlined in our 2020 white paper for
the World Economic Forum annual meeting, "Becoming climate aware:
Mobilizing capital to help meet climate change goals", we have formulated
a Climate Aware framework which helps
investors align their portfolios towards a climate-smart future. The framework
is built on the methodology which underlies UBS-AM’s Climate Aware strategy. The main
characteristics of the framework are:

Based on our experience, maintaining a balance between
required investment returns and minimizing climate risks works most effectively
when investors integrate climate change considerations into a diversified
portfolio. Similar to ESG integration, this is an important element in
understanding the specific effects of climate change. As TCFD has highlighted,
these can be viewed as regulatory, market, technology and physical risks. How
they play out at the level of markets, industry sectors and individual issuers
depends on an interplay of:

–regulation;

–commercial considerations;

–impact of technology on business models,
revenues, costs and capital requirements.

Integrating these three aspects puts the
focus on the most material issues relating to the reduction of emissions
generated by the most carbon-intensive sectors. It also leads to a deeper and
more investment-relevant understanding of the physical risks.

Portfolio adaptation

Investing for a low-carbon future
hinges on the ability to invest in, and fund, new technologies and solutions.
The key investing areas relate to GHG emissions reduction, energy transition,
and energy efficiency. They include companies that manufacture and deploy these
technologies as well as the infrastructure and services that make these
achievable at scale. There are variety of developments in business structure,
asset ownership, supply chains and delivery models that may be deployed as part
of the climate change transition. It is also important to recognize that there
are different kinds of investors that are better-placed for certain kinds of
investments. Venture capital, private equity, real estate, public equity and
public fixed income all have different appetites for technology risk.

Portfolio transition

It is important for investors to
understand the difference between where they are now and the possibilities of
the climate transition. Scenario analysis is emerging as a response to the
uncertainties of climate change. Engagement, meanwhile, provides an opportunity
for investors to encourage good corporate practice and, together with voting,
keep management accountable for the actions needed to keep pace with the
climate transition. It also allows investors to understand the investment
dynamics in individual sectors and countries and determine the overall
direction of travel. By applying the tools of scenario analysis and engagement,
investors are better able to manage the transition to a climate-smart future.

AM is also a member of the Institutional
Investors Group on Climate Change (IIGCC) Climate Action 100+ European Advisory
Group, which advocates for the world’s transition to a low-carbon economy.

Our other business divisions also translate
this strategic thinking on climate into concrete products and services. UBS
offers 100% sustainable discretionary mandates and asset allocation funds based
on an innovative dedicated Sustainable Investing Strategic Asset Allocation for
private clients in Global Wealth Management (GWM) and Personal & Corporate Banking (P&C). These include an
explicit allocation to strategies that aim at mitigating climate change, such
as green bonds and thematic investments, but also others that contribute
indirectly to climate change mitigation such as Multilateral Development Bank
bonds, ESG leaders and ESG improvers. GWM developed a new advisory solution
that includes an explicit climate change dimension, allowing clients to tilt
their portfolios towards the issues they care about. Ultimately our goal in
developing new products and services is to ensure that all material risks and
opportunities are addressed, and to allow clients to select sustainable
investments aligned to their interests while receiving financial returns in
line with traditional investment approaches.

GWM integrates sustainability assessments,
focusing on the sustainability intentionality of fund managers, into all fund
and ETF onboardings. We have set a target of directing USD 5 billion of
client assets by the end of 2021 into new impact investments contributing to the
SDGs. These investments include a significant climate component. GWM’s mutual fund and ETF offering includes
climate-focused investment strategies, comprising those focused on clean / alternative
energy.

We participated in launching, and have an ongoing
partnership with, Align17, an independent, third-party digital marketplace.
Align17 stands out in connecting a wider range of public, institutional, and
private wealth investors with SDG-related investment opportunities. These
opportunities are available to qualifying UBS clients and often serve to
finance climate-related projects.

Our AM and GWM businesses have in place a
comprehensive approach to address environmental, social and corporate
governance factors across investment disciplines. For example, sustainability
themes are embedded in GWM’s equity research processes, while AM’s Real Estate
and Private Markets has developed a Responsible Investment Strategy to enhance
investment performance of mandates for direct and indirect real estate and infrastructure
investments. The 2019 GRESB (formerly Global Real Estate Sustainability
Benchmark) awarded 15 out of 20 of AM’s submitted real estate and
infrastructure funds 5-star ratings with the remaining funds achieving a 4-star
rating.

Our Investment Bank provides capital-raising
and strategic advisory services globally to companies that make a positive
contribution to climate change mitigation and adaptation, including those in
the solar, wind, hydro, energy efficiency, waste and biofuels, and transport
sectors. In 2019, the deal value in equity or debt capital market services, and
of financial advisory services, related to climate change mitigation and
adaptation, rose to USD 87.2 billion, from USD 56.5 billion in 2018.

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We strive to be the
preferred strategic financial partner relating to Switzerland’s Energy Strategy
2050. In 2019, P&C supported 12 strategic transactions in support of the
strategy. The UBS Clean Energy Infrastructure Switzerland strategy offers
institutional investors unprecedented access to a diversified portfolio of
Swiss Infrastructure facilities and renewable energy companies. Due to clients’
demand, a successor strategy was launched in September 2017. In our P&C
business we have also integrated Sustainable Investing Advisory into the
strategic dialogue with our institutional clients.

To support philanthropists entering the
climate space, UBS Optimus Foundation and the Climate Leadership Initiative
(CLI) have developed four principles for effective climate philanthropy. CLI
was created by six of the top climate donors this year with the express goal of
making it easier for new philanthropists to learn, become connected to peers
and experts and join the fight.

The four principles are Understand Climate
Solutions and Impact; Collaborate and Take Action Swiftly; Be Prepared to Stick
With It; Marshall All Your Resources.

Climate-related metrics

In 2019, we have again significantly
reduced the share of our carbon-related assets to 0.8%, down from 1.6% in 2018
(and 2.8% in 2017). More broadly, our share of exposure to climate-sensitive
sectors has reduced in 2019 to 15.5% from 19.6% in 2018 (% of total gross
banking exposure across IB and P&C).

Climate-related sustainable investments
increased to USD 108 billion, up from USD 87.5 billion in the
previous year. At the end of 2019, we had reduced our GHG emissions by 71%
compared to baseline year 2004.